College of Business and Economics
Course - Project Management (MGMT 4191)
Chapter 4: Project Preparation
By Seid M.
Addis Ababa University
April 2025
Chapter 4: PROJECT PREPARATION
Project preparation involves two steps, which are conducting pre-feasibility study
and feasibility study.
Pre-feasibility study is expected to identify broad areas of risks such as Technical,
social, environmental, institutional, financial, economic, political etc.
Prefeasibility study is undertaken if any one of the following is true.
A. When there is serious lack of information on the development problem,
B. When the project proposal is poorly defined
Some of the main components that should be examined during the pre-
feasibility study include:
Availability of adequate market
Project growth potential
Investment costs, operational cost and distribution costs
Demand and supply sectors and
Social and environmental considerations
CONT...
On the other hand:
• A project feasibility study is a key process that justifies whether to go ahead
with a certain project idea or to disregard it.
• As the name implies, a feasibility study is an analysis of the viability of an idea
from different parameters.
• The feasibility study focuses on helping answer the essential question of “should
we proceed with the proposed project idea?”
CONT…
Meaning and Components of Feasibility Study
• A feasibility study is an analytical tool used during a business development process to show
how a business would operate under a set of assumptions. These assumptions often include
such factors as the technology used (the facilities, equipment, production process, etc.),
financing, (capital needs, volume, cost of goods, wages, etc.), marketing (prices, competition,
etc.), and so on.
• Feasibility study is detailed investigation of the proposed project and recommending
whether the implementation is feasible on this stage.
• Feasibility study (project preparation phase) of a project may have the following major
components:
1. Market and demand analysis 4. Technical analysis
2. Financial analysis 5. Economic and social analysis
3. Environmental analysis 6. Human resource and organization
CONT…
1. MARKET AND DEMAND ANALYSIS
• it should be carried out in an orderly and systematic manner. The key
steps in such analysis are as follows:
a) Situational analysis and specification of objectives
b) Collection of secondary information
c) Conduct market survey
d) Characterization of the market
e) Demand forecasting and market planning
Cont.…
A. Situational Analysis and Specification of objectives
• In order to get a 'feel' for the relationship between the product and its market, the
project analyst may informally talk to customer competitors, intermediaries,
and others in the industry without making formal study. If such a situational
analysis generates enough data to measure the market and enable us to have a
clear picture over projected demand and revenue, a formal study need not be
carried out, particularly when time and cost consideration so suggest.
• However, the information collected through situational analysis may not be
complete to make a market analysis, so detail market study shall be conducted
aimed to the following basic questions?
Cont . . .
Who are the buyers of the product?
What is the total current demand for the product?
How is the demand distributed temporally & geographically?
What is the break-up of demand for products of different sizes?
What price will the customers be willing to pay for the improved product?
How can potential customers be convinced about the superiority of the new
product?
What channels of distribution are most suited for the product?
B. Collection of Secondary information
• Information for market and demand analysis may be obtained from central
statistics office, sample survey reports, annual survey of
industries/agriculture and export, annual report by national bank of
Ethiopia, bulletin on import and export, planning reports, academic
studies, etc.
• These sources may provide starting point for market and demand analysis.
However, their reliability, relevance, and accuracy for intended purpose
should be carefully examined. Moreover, it provides leads and clues for
gathering primary information required for further analysis.
Cont.…
C. Conduct of Market Survey
• For undertaking a market survey there is a need to have a sample, which represents the entire
market. Thus, sampling is the process of drawing a limited number of subjects from a larger
population or universe. Since, the researcher cannot survey the entire universe or population that
they are interested, they usually draw a sample of subjects from the population for investigation.
• Steps in a Sample Survey
1.Define the target population
2.Select the sampling scheme and sample size: there are several sampling schemes, simple random sampling,
cluster sampling, sequential sampling, stratified sampling, systematic sampling and non-probability sampling.
3.Develop the questionnaire:
4.Recruit and Train the Field Investigators
CONT--
5. Obtain information as per the questionnaire from the sample respondent
6. Scrutinize the information gathered
7. Analyze and Interpret the Information
D. Characteristics of the Market
Based on the information gathered from secondary sources and through the market
survey, the market for the product may be described in terms of the following:
a) Effective demand in the past and present b) Breakdown of demand
c) Price d) Methods of distribution and sales
promotion
e) Consumers f) Supply and competition
g) Government policy
Cont---
E. Demand Forecasting and Market Planning
After gathering information about various aspects of the market and demand
from primary and secondary sources, an attempt may be made to estimate future
demand. A wide range of forecasting method is available to the market analyst.
This may be broadly divided into two categories:
1. QUALITATIVE AND
2. QUANTITATIVE METHODS.
1. QUALITATIVE METHODS: These methods rely essentially on the judgment of
experts to translate qualitative information into quantitative estimates
Cont.--
The important qualitative methods are:
Jury of executive opinion method: very popular in practice, this method
calls for the pooling of views of a group of executive on expected future
sales and combining them into sales estimates.
Rationale:
Upper-level management has best information on latest product developments
and future product launches.
Approach: Small group of upper-level managers collectively develop forecasts
Cont.--
Main Advantages
Combine knowledge and expertise from various functional areas
People who have best information on future developments generate the forecasts
Main drawbacks
Expensive
No individual responsibility for forecast quality
Risk that few people dominate the group
Typical applications:
Short-term and medium-term demand forecasting
Delphi method: this involves converting the views of a group of experts, who do
not interact face to face into a forecast through an iterative process.
Rationale: Anonymous written responses encourage honesty and avoid that a group
of experts are dominated by only a few members
Cont.--
Main Advantages
Generate consensus
Can forecast long-term trend without availability of historical data
Main drawbacks
Slow process
Experts are not accountable for their responses
Little evidence that reliable long-term forecasts can be generated with Delphi or other methods
Typical application
Long-term forecasting
Technology forecasting
QUANTITATIVE METHODS: uses mathematical and statistical models to predict and
estimate future demand.
Time series projection methods- generates forecast on the basis of analysis of historical
data‟s. These include trend projection method, exponential smoothing method and moving
average method. However, for the sake of this course level only trend projection will be
discussed in detail.
Cont.--
Casual methods: More analytical than the preceding methods, causal methods seek
to develop forecasts on the basis of cause-effect relationships specified in an explicit,
quantitative manner.
1. Trend Projection Method (Time series analysis)
Time series analysis forecasts based on an analysis of how variables of interest have
moved historically over the past periods. It does not make a real attempt to
analysis why the variables has changed as they did in the past. The change is only
related to time. It helps to forecast about the future based on what has happened in
the past. It is more suitable when changes have a certain pattern and the same pattern
is expected in the future too.
Time series analysis is becoming a very simple task with advancement of computer
spreadsheet technologies. When the trend projection method is used, the most
commonly employed relationship is the linear relationship. Y= a + bx
y= demand for the year (dependent variable) x= time variable (Independent
variable)
a = intercept of the relationship b= Slope of the relationship
Cont.--
Let us consider the case of Mid-Western Manufacturing Company; that firm's demand
for electrical generators over the period 2001-2007 is shown below:
Cont.--
If we can compute the y-intercept and slope, the line can be expressed by the following
equation:
Ŷ = a + bX,
Where
Ŷ = Computed value of the variable to be predicted (Dependent variable)
a = y - axis intercept
b = slope (the rate of change in y for given changes in x)
x = Independent variable
WITH A SERIES OF DATA OVERTIME, THE COMPUTATIONS CAN BE REDUCED IF THE VALUES OF
THE X- VARIABLE (TIME) ARE TRANSFORMED TO SIMPLER NUMBERS THAT SUM TO ZERO .
Cont---
• To project sales in 2008, we first denote the year 2008 in the new coding system; in
this case as X = 4 Ŷ (Sales in 2008) = 98.86 + 10.54(4)= 141.02 or 141 Generators
• Sales for 2009 are estimated by inserting X= 5 in the same equation.
• Ŷ = 98.86 + 10.54(5) = 151.56 or 152 Generators
• Therefore, following is the next five years (2008 -2012) projection:
- Thank You -
