i. Is Market Real?
Identifying whether a market exists and whether a product can be made to satisfy that market are the first steps in product/project screening. These steps indicate the degree of opportunity for any firm considering the market. The market assessment should come before assessing if the manufacturing of the product is even a possibility. There are two reasons for this – a) the robustness of the market
probability of a product failure becomes greater when the market is unfamiliar to the company than when the product or technology is unfamiliar. [For example, Procter and Gamble reported that 70% of product failures occur because companies misconstrue the market. This is mainly because companies tend to emphasize more on ―how to solve a problem‖ rather than ―what problem needs to be solved‖ or ―what customer desires need to be satisfied‖].
A market opportunity is real only if it meets four conditions:
1. The product will clearly meet a need or solve a problem better than available alternatives
2. Customers are able to buy it
3. The potential market is big enough to be worth pursuing 4. Customers are willing to buy the product
ii. Is the Product Real?
a. Is there a clear concept?
Before development actually begins, the technology and performance requirements are usually vague or poorly defined. The team members often have diverging ideas about the products/projects precise characteristics. At this stage, those ideas need to be explored further so that what is to be developed is clearly identified. As market realities begin to emerge, the requirements should get more clarity. This process not only relates to identifying technical specifications, but also evaluating the concepts legal, social and environmental acceptability.
b. Can the product be made?
If the concept is solid, the team must next explore if the project/product is feasible. This would involve examining if the product can be created with available technology and materials, or would it require some sort of a breakthrough. If the product can be made, an assessment of whether it can be produced and delivered cost effectively is required. Finally it needs to be examined if either a value chain for the proposed product exists or that it can be easily and affordably be developed, and that de facto technology standards can be met.
c. Will the final product satisfy the market?
During the development stage, trade-offs might be made in performance attributes; unforeseen technical, manufacturing, or systems problems; and features are modified. Failure to carefully monitor these changes can result in an offering that looked great on paper but no longer satisfies the market.
B. CAN WE WIN?
The more real an opportunity, the more likely it is for competitors to be eying it as well. After assessing if the market and product are real, the project team must then assess the company‘s ability to gain and hold onto an adequate market share. This analysis looks to distinguish between the offerings ability to succeed in the marketplace and the company‘s capacity – through resources and management talent – to help it do so.
a. Can the product be competitive?
Customers will choose one product over alternatives if it‘s perceived as delivering superior value with some combination of benefits. The analysis must consider all sources of perceived value for a given product and consider the questions – does it have a competitive advantage? can the advantage be sustained? And “how will competitors respond? This can be assessed by looking if someone else‘s offering is providing customers with same results or benefits. The analysis should consider if the product offers additional tangible advantages such as lifetime cost savings, greater safety, higher quality, and lower maintenance etc.; or intangible benefits such as greater social acceptability and the promise of reduced risk.
b. Can the company be competitive?
Once it‘s established that the offering can ―win‖, the analysis must determine if the company‘s resources, management, and marketing insights are better than those of the competition. Otherwise it‘s highly unlikely that the advantage can be sustained. The odds of success increase greatly when a company has or can get resources which enhance the customer‘s perception of the products value and
surpass those of competitors. Superior engineering, service delivery, logistics, or brand equity can give the products an edge.
An analysis of the management resources must look at – whether the organization has direct or related experience in the market, whether its skills are appropriate for the scale and complexity of the project, and whether the project fits company culture and has a suitable champion.
Successful product development also requires an understanding of market research tools and openness to customer/stakeholder insights. Repeatedly seeking feedback from customers/stakeholders to refine concepts, prototypes, and pricing ensures products won‘t have to be recycled through the development cycle to fix deficiencies thus saving time and costs.
C. IS IT WORTH DOING?
This final stage of the screening process provides the basis of whether a project needs to be pursued or not. The analysis is based on a rigorous assessment of the financial and strategic value of the product/project.
a. Will the project be profitable at an acceptable risk?
Most projects are terminated at this stage if the answer to the question - are forecasted revenues greater than costs? Is a No or Maybe. It has to be a definite YES for management to consider pursing the project. This requires projecting the timing and amount of capital outlays, marketing expenses and costs, and margins; applying time to breakeven, cash flow, ROI, net present value, and other standard financial performance measures; and estimating the profitability and cash flow from both aggressive and cautious approaches.
However, forecasts of financial returns of new projects are quite unreliable. This is because of the susceptibility of financial forecasts to manipulation (as they are competing with other projects for scarce resources), overconfidence and bias. Hence relying on rigorous answers to all the prior questions in screening process can help decision makers arrive at their own conclusions on profitability.
b. Are the risks acceptable?
A forecast‘s riskiness can be assessed with a standard sensitivity test: how will small changes in price, market share, and launch timing affect cash flows and breakeven points? A big change in the financial outcomes as a result of small changes in input assumption indicates a high degree of risk. The financial results should also consider the opportunity costs – committing resources to one project may hamper the development of others. To thoroughly understand risk, the analysis should consider all the potential causes of project/product failure that have been identified by the RWW screen and devise ways to mitigate them.
c. Does launching the product make strategic sense?
Even when a market and concept are real, the product and company could win, and the project is profitable, it may not make strategic sense to launch. To assess if the project makes strategic sense, two questions can be used- Will it have a positive or negative impact on brand equity? That is will it cannibalize or improve sales of the company‘s existing products; will it enhance or harm relationships with stakeholders (dealers, distributors, and regulators), and does the business create opportunities for follow-on business or new markets that would not be possible otherwise; and Does the product/project fit the overall growth strategy? That is, will it enhance the company‘s capabilities (for ex. by driving the expansion of manufacturing, logistics or other functions).
2.2.1.4 Approach IV: A Systems Approach to Agro-industrial
Project Feasibility Analysis – Adapted from: Agroindustrial
Project Analysis – Critical Design Factors, by Austin (1992)
2.2.1.4.1 Overview
An agro-industry is an enterprise that processes materials of plant or animal origin. Processing usually involves transformation and preservation through physical or chemical alteration, storage, packaging, and distribution.
material: seasonality, perishability, and variability. Additionally, three other factors can influence agro-industrial projects –
First, raw materials usually form a major cost component of agroindustries. Hence procurement operations fundamentally shape the economics of the enterprise. But the uncertainty in agro-production leads to instability in raw material prices, thereby complicating budgeting and management of working capital.
Second, many Agroindustrial products are necessities or of major economic importance to countries. Hence governmental interest and involvement in agroindustrial activities are often high. Social, economic, political and legal considerations and governmental actions become very relevant to project analysis.
Third, same agricultural commodities are produced in different parts of the world. Therefore, local agricultural industries are linked to international markets, which represent alternative sources of raw materials, competitive imports, and export opportunities. International commodity markets experience considerable price volatility which affects the agroindustries financial uncertainty on the input and output sides. Moreover in some countries the climatic conditions give the agroindustry a distinct advantage in producing certain export oriented products. These distinctive characteristics of the agroindustry call for a special analytical framework that takes these features into account.