The Importance of Investment and the Purpose of conducting an Investment Business Feasibility Study

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The Importance of Investment and the Purpose of a Feasibility Study of Investment Business- Well as we know many countries have made policies that aim to increase investment in that country.

Even if it is estimated that domestic capital will not be able to increase investment, the government will not hesitate to invite foreign parties to invest in the country. Why is the government doing this? Another reason is that investment activities will also encourage the economic activities of a country.
Importance of Investment Benefits
There are many benefits that can be obtained from investment activities. This includes employment, increased production, currency savings or foreign exchange additions, etc.

What is clear is that if investment activity increases, economic activity will also be encouraged. Of course, if this investment activity is a sound investment, the real meaning is economically profitable.

It is not an investment activity that seems “profitable”, but actually gets various facilities, so it is not healthy for the country’s economy.

Here we use the notion of an investment business project as a plan for investing resources that can be assessed fairly independently.

The business project can be a giant business project, it can also be a small business project. The basic characteristic of capital expenditure (or business project) is that the business project generally requires current expenditures to obtain future benefits.

These benefits can be in the form of benefits in the form of money, or not. Such capital expenditures are, for example, in the form of expenditures for land, machinery, buildings, research, and development, as well as training programs.

Here we use the notion of an investment business project as a plan for investing resources that can be assessed fairly independently. The business project can be a giant business project, it can also be a small business project.

The basic characteristic of capital expenditure (or business project) is that the business project generally requires current expenditures to obtain future benefits. These benefits can be in the form of benefits in the form of money, or not. Such capital expenditures are, for example, in the form of expenditures for land, machinery, buildings, research, and development, as well as training programs.

In accounting, capital expenditures are generally included in the assets on the balance sheet. Regarding consistency in maintenance, these costs are generally costs that have been deferred and are charged annually through the depreciation process (except land).

From the company’s point of view, projects or commercial activities that involve capital expenditures are of great importance because:

  • Capital expenditures have long-term consequences. Capital expenditure will shape the company’s activities in the future and the nature of the company in the long term.
  • Capital expenditures generally involve very large amounts.
  • Capital expenditure commitments are not easy to change. The market for used capital goods may not exist, especially for very specialized capital goods. Therefore, it is difficult to change capital expenditure decisions.

The Purpose of Conducting a Feasibility Study of a Business

It has been mentioned above that investment business projects generally require substantial funds and affect the company in the long term.

Therefore, careful studies need to be carried out so that the business project, after having already invested a very large amount of money, turns out to be unprofitable.

If the business project originates from the private sector, then the business project is often forced to be terminated or sold. However, if the sponsorship is from the government, it is often the case that the government tries to keep the business project running, even with various aids, protections, subsidies, and so on, which is actually not healthy from a macroeconomic point of view.

There are many reasons why a business project turns out to be unprofitable (failed). Because it can take the form of planning errors, errors in estimating the available market, errors in estimating the right technology to be used, errors in estimating the continuity of raw materials, errors in estimating labor needs with the availability of existing labor.

Impact If Feasibility Study Is Not Conducted

Another reason could come from the uncontrolled implementation of business projects, as a result, the cost of developing business projects becomes ‘swell’, the completion of business projects is delayed, and so on.

In addition, it can also be caused by increased environmental factors, both the economic, social, and even political environment. It could also be for reasons that were completely unexpected, such as a natural disaster at the location of a business project.

For this reason, a study of the (minimum) economic feasibility of a business project is very important. The larger the scale of the investment the more important this study is.

Even for large business projects, this study is often carried out in two stages, namely the preliminary stage and the overall stage.

If the preliminary study shows unfavorable symptoms, then the overall study may no longer need to be carried out.

In short, we can say that the purpose of the feasibility study is to avoid unprofitable large-scale sustainable investments.

Of course, this feasibility study will cost money, but the cost is relatively small when compared to the risk of failure of a business project that involves a large investment.

In the feasibility study, it is necessary to know:

  • Scope of business project activities
    Here it is necessary to explain/determine what areas the business project will operate in. If, for example, the business project is the establishment of a textile factory, then is this textile factory an integrated textile, or is it only in certain stages.
  • How business project activities are carried out
    Here it is determined whether the business project will be handled alone, or will be handed over to (several) other parties. Who will handle the business project?
    Evaluation of the aspects that determine the success of all business projects.
    Here it is necessary to identify the key factors for the success of this kind of business. A technique that can be used is to identify the “underpinnings” for this kind of endeavor.”
  • The tools required by the business project. Concerning not only needs such as materials, labor, and so on, but also includes supporting facilities, such as: roads, transportation, and so on.

The results of the business project activities, as well as the costs that must be borne to obtain these results.
The consequences are beneficial or not from the existence of the business project. This is often referred to as economic and social benefits and sacrifices. The plan steps for establishing a business project, along with the schedule of each of these activities, until the investment business project is ready to run.

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