The dynamics of today’s business environment have changed rapidly with the increase of risks and uncertainties. With this, it becomes vital for businesses to overcome competitors by providing value and efficiency to their clients.
To survive in this arena, you need to have accurate planning and conduct analysis before plunging into the industry. The best example of this analysis is the Techno Economic Viability or TEV study.
The study takes into account the historical background of the project, project description, accounting statements, details of the operations and management, marketing policies, financial data, legal requirements and tax obligations.
Here, you evaluate the desired project as per pre-defined procedures to gather technical and financial information. You also have relevant data about its technological and economic environment.
After considering all these aspects, you decide to select or reject the project.
The main aim of TEV study is to:
- Reveal the strengths and weaknesses of an existing business.
- Analyse the threats and opportunities in the current environment.
- Streamline all the resources required to make it a success.
- Understand the prospects of the project.
This study is required by banks, Asset Reconstruction Companies (ARCs), engineering firms, and other institutions for the following purposes:
- Project loans appraisal
- Project financing (that includes term loans)
- Revitalising distress assets
- Sharpen leadership skills to manage your team
- Cut expenses without compromising on quality
- Automate your business
The key objective of this study is to get a detailed insight into the project descriptions, accounting statements, resource allocations, legal requirements, financial data, tax obligations, etc.
This study is mandatory before technical development and project execution to identify if the project is profitable or not.
To incorporate this study into your business, you need to know its benefits. Head down.
- Acquire a crystal-clear idea of whether the project is likely to be successful even before you decide on the human resources, time and effort.
- Improve the project team’s focus and efficiency.
- Allow you to detect and capitalise on new opportunities.
- Help you to understand the how’s and why’s of the project before even starting it.
- Give you time to streamline your business alternatives.
- Detect problems before-hand and aid in troubleshooting it.
- Enables risk mitigation
- Get valuable insights to the team members and stakeholders about all the possibilities of the project.
The TEV study encompasses of all the elements required to conclude at an informed judgement to accept a project for lending or investment purpose. Rakesh Narula & Co. provides you with a TEV report that projects a realistic view of both the positive and negative aspects of a project.
Before preparing your TEV study, you need to know the components of the TEV study:
1. Assessment of the promoter
Appraisal of the promoter is a vital aspect of credit appraisal since promoters will be running the project. The TEV study requires the personal and financial profile of the promoters.
You need to conduct a personal profile assessment to understand their financial capacity and competence of promoters. This includes resourcefulness, past trip record experience, financial stability and support, family background, stake in other companies/firms, etc.
2. Opt for a competent management team
Your management should have disciplined experts from various industries to help you in your project’s success. Every team member should have an ample amount of experience in:
- Production
- Marketing
- Human resource development
- Finance
- Project implementation
The designated person should have the right skill and expertise in their respective discipline, depending on the size of the project.
For a meaningful TEV study, you need to have all the elements like organisational structure (both existing and proposed) and key personal profile along with their designation and experience in the particular field.
3. Technical assessment
This one consists of thorough research in the latest technology and resources required for the project. You even need to study the suitability and adequacy of the production process in order to get the projected output, adaptability of project location selection, project rationale, project implementation schedule, the current status of the project, etc.
4. Market assessment
Assessing future growth and outlook of the project is a must!
A future outlook in your industry is mandatory to evaluate the demand and supply of the products used in the project. Keep a close eye if your product supply covers market size, including the competition scenario, the expected trend of the consumers and likewise.
5. Thorough industry analysis
Industry analysis is done by business owners and other individuals to assess the current business environment. It helps to understand the various economic aspects of your industry and how they can be used to gain a competitive advantage.
Just like other businesses, this is a crucial element in TEV study wherein you compare various key parameters like operations, products, services and financial growth trend with your similar projects.
It also considers the geographical landscape of other industry leaders falling in the same line of activity.
6. Financial viability of the project
There are a few things you need to consider while preparing one:
This means that the project should be able to generate sufficient cash flow to deliver a risk-adjusted return on capital invested.
Your project should be able to repay the debt and yield sufficient returns. This is what everyone desires for!
This component is evaluated by inspecting the capability of the project to generate a desirable profit using achievable financial projections. To know the financial viability of the project, you need various aspects like ratio analysis, working capital requirement, term loan requirement, etc.
7. Simulation analysis/Sensitivity analysis
In this method, you carry out infinite calculations to obtain possible outcomes and probabilities for any choice of action. This financial model is commonly used to predict the outcome of a decision using certain variables.
In this case, you analyse the impact of variation in key assumptions like selling and raw material prices to know the financial viability of the project.
8. SWOT Analysis
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It’s a strategic planning tool that includes identifying internal and external factors or highlighting the objectives of the project to find the favourable and unfavourable elements to achieve the desired goal.
These are some things that have some control and can be changed to achieve the desired result.
9. Financial security
It includes primary and collateral security for lenders to estimate security coverage.
10. Risk Analysis
Last but definitely not the least, risk analysis is mandatory.
It’s conducted by identifying operational risk, market risk, financial risk and risk in resource mobilization, project execution, regulatory and political risk.
The simple reason to include this study is to mitigate the identified risk and come up with preventive measures to overcome issues in the near future.
Conclusion
TEV study is an integral aspect of project management wherein a well-defined TEV study will increase the likelihood of project success. We hope that’s a lot of information to kick-start with your project.
A TEV report requires in-depth knowledge of both – Technical and Financial aspects.
Look no further!
Rakesh Narula & Co. (RNC’s) blend of proficient and highly competent technical and commercial team facilitates bankers and investors to make suitable lending/investment decisions. Contact us today!
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