Revised Project Financial Analysis

(ver: 23-Aug-2007)

The purpose of the deliverable on the 19th is to sharpen your portion of the Final Report that addresses financial feasibility. A month ago, we addressed major questions that you had about financials. Hopefully, you have addressed those questions and are ready to draft your final version of the financial viability of your recommended product/service. If there are still a few loose ends, at least the form of your assessment should be coming into focus.

For what are essentially new ventures, it makes sense to do proforma income statements and balance sheets over a period of time because these are essential to obtain investment in the venture or to establish the value of the intellectual property that you hope to sell. For an established company, you should make sure that you know what financial analysis is usually required to establish financial feasibility of a new product.

In all cases you will need to estimate several things:

  1. market potential for your product/service,
  2. the value that potential customers will attribute to your product/service,
  3. how you intend to appropriate that value (establish price, an estimate of cost saving, or an estimate of the value of increased sales/reversal of an anticipated sales decline),
  4. cost (fixed and variable) to deliver the product/service,
  5. general overhead costs,
  6. necessary investments (research, product development, patent filing, initial marketing/advertising, increased accounts receivable,
  7. the rate of product/service penetration of the market potential.

For all of these estimates you will need some rationale for the values that you have chosen. In general the precision of your estimates is less critical than the logic behind them. Readers can adjust the estimates if they appreciate the logic.

In your presentation, state your judgement of the "bottom line" whether favorable or unfavorable and then the details of your analysis. For the 19th concentrate on the critical estimates and your logic for your choices. Give some indication of the "risk" involved in your estimates (conservative, optimistic, or whatever). Where there is substantial "risk" in a critical estimate, present appropriate sensitivity analysis.