15 the project framework must be defined clearly enough to permit the
technical analysis to be through and precise. Whatever the type of the project, the main factor needed to be
determined is its location. The other factors that should be assessed are the source of the raw materials, labor, tools and machines, transportation
to distribution, communication, environment and infrastructure that support the production process.
Also, the type of the technologies, its total and its size must be highlighted. And the last requirement is about the production technique
aspect. The production has to be programmed by taking into account the duration of the project. Therefore, the capacity of the production should
be planned.
c. Financial aspect
According to many authors, the financial aspect constitutes the key aspect of the project. This aspect analyzes the amount of the initial
investment required and its source, the total costs operating and maintenance cost, labor cost etc and the total benefits. It also allows
evaluating the financial feasibility through indicators such as Net Present Value, Internal Rate of Return, Payback Period and so on Ashish,
et al.
2012.
The initial investment is the amount of money required to start up the project or the Business. It comprises the cost of the capital and the
amount of the initial operating cost. Concerning the Investment source, it has to be clear from the
beginning. It may be from banks, investors self financing andor shareholders.
The operating and maintenance cost comprises both variable and fixed costs. Managers should pay special attention on these costs because
they will affect the financial feasibility indicators Ibrahim, 2003. Fixed cost consists of workers’ wages, bank interest rate, loans, depreciation,
insurance etc. However, variable cost comprises the cost of production perpustakaan.uns.ac.id
commit to user
16 process that depends on the production capacity. Production process cost
consists of raw material cost, direct labor cost, energy cost, building rent and so on.
The benefit that the project will generate has to be clarified as well as possible because the decision that managers will make depends largely
upon it. The feasibility of the project can be known through indicators such as Payback Period, Net Benefit Cost Ratio Net BC, Net Present
Value NPV, Internal Rate of Return IRR, Break Even Point BEP etc.
Payback Period is the length of time from the beginning of the project until the net value of the incremental production stream reaches
the total amount of the capital investment. If the duration of the Payback Period is shorter than the duration of the project, the investment is
feasible Ibrahim, 2003. Net Benefit Cost Ratio Net BC is the amount of net benefit that is
profitable, produced from project financial lost unit. Net benefit is the value of net present income, while cost is the value of negative net
present income. The judgment of project feasibility result on net Net BC: if Net
BC ≤ 1the project is not feasible and if Net BC 1, the project is feasible Agus, 2011.
Net Present Value is the difference of the present value from the benefit and cost flow, which is measured based on certain level of
discount. If NPV 0, the project is financially feasible, otherwise the project is not feasible Agus, 2011.
Internal Rate of Return IRR is the discount level that makes NPV for a project equal to zero. If IRR is greater than the current interest
level, the project is feasible, otherwise the project is not feasible not Agus, 2011.
d. Socio-Economic aspect
