Estimates Financial planning

Estimates Financial planning

Finance is one of the basic prerequisites to start a new project. It is the availability of finance that facilitates an entrepreneur to bring together all the other factors of production and to combine them to start the production. The significance of finance in production is just like lubricant to the process of production. Financing a project-whether big or small-is a critical element for success in business. Many projects though potentially successful fail because of lack of sufficient finances. Therefore, it is very important that every enterprise should chalk out its future capital requirements in the very beginning itself.

Financial analysis is the process of obtaining rel-
evant economic information about a project in order to determine its financial viability. It analyses whether it is financially feasible to undertake a particular project. Most of the data and information needed for financial analysis is obtained from Market and Demand Analysis, Technical Analysis and Cost Analysis.

Financial Planning of an enterprise. It is a financial forecast made for the enter-
Financial Planning deals with future financial aspects In a financial plan, an entrepreneur needs the answer much money is to the following questions:

1.How much moneyis needed cost

2.Where will the money come from (Sources of Finance)

3.When does the money need to be available (Fixed Capital/Working Capital)?

The information needed for the answers to these
questions is discussed in detail as follows:

Project Cost Estimates

A project cost estimate is required not only for assessing the fund requirements but also for ascertaining the economic viability of the project. The cost estimate must be accurate and correct. The financial plan is based on the cost estimates. If the cost is not estimated correctly, the financial plan will also become inaccurate. If the project cost is under estimated, the project will face shortage of funds and this may lead to suspension of the project or at least delay in the implementation. Delay will increase the overall cost of the project rendering it economically less viable. On the other hand if the cost is over estimated, the project will be over- capitalised and will be less profitable as compared to the other competitive projects. An accurate estimate is, therefore, essential not only for getting a project cleared but also to ensure adequate profitability.

Accuracy in the cost estimates is not an easy task, because of the difficulty in obtaining the required information. The actual information in a project gets developed only successively, but a cost estimate is required on the first day of the project to assess the magnitude of the investment involved. Full information about the cost of the project is available only on the completion of the project. One has to make a workable estimate with reasonable accuracy, for different stages of the project life cycle. Project cost estimate is concerned with the estimation of project capital costs and project operating costs.

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