Overview

Financial viabilityis all about the project’s tendency to produce enough revenue so that its prices can be borne and long-term sustainability can be maintained. This means that the income generated from the project should not exceed its expenses. This include costs of labor, material, marketing and overheads. It involves analysis of projected revenues, potential risks and prices. Having knowledge about it is important for effective project management. To mitigate the risks of project failure, ensure project’s financial condition. Projects that are financial viable are likely to attract stakeholders and investors.We at Your Property Doctor help you ascertain whether or not the project is worth pursuing.

IndispensableComponents of Financial Viability

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• Return of Investment: Calculating the return on investment, such as, internal rate of return and net present value helps you know the risks and financial benefits of the project, and compare other investment options.

• Analysis of Cash Flow: Cash flow analysisof the project, including outflows and inflows of cash over the lifecycle of the project, helps in assessing working capital requirements, liquidity, and the tendency of the project to meet the financial obligations.  

• Risk Assessment: Risk assessments, such as financial risks, operational risks, and market risks helps in assessing the resilience of the project to potential uncertainties and challenges and develop strategies for risk mitigation.  

• Estimation of the Cost: Cost estimation, including operating expenses, capital expenditures, and project-related overheads, helps you determine the funding requirements of your project and assessing its financial viability.  

• Risk Assessment: Risk assessments, such as financial risks, operational risks, and market risks helps in assessing the resilience of the project to potential uncertainties and challenges and develop strategies for risk mitigation.  

• Estimation of the Cost: Cost estimation, including operating expenses, capital expenditures, and project-related overheads, helps you determine the funding requirements of your project and assessing its financial viability.  

• Risk Assessment: Risk assessments, such as financial risks, operational risks, and market risks helps in assessing the resilience of the project to potential uncertainties and challenges and develop strategies for risk mitigation.  

• Forecasting Revenue: Revenue forecasting, consideringpricing strategies, sales projections, and market demand helps youevaluate revenue-generating potential and profitability of the project.  

What Techniques are Adopted for the Evaluation of Financial Viability?

• Scenario Analysis: Analysis of many scenarios to assess the range of possible outcomes and recognize the worst and best scenario for making decisions.  

• Cost-Benefit Analysis: Comparison of the benefits of the project with its costs to ascertain whether the expected returns will justify the investment.  

• Break-Even Analysis: Knowing the point at which your project’s revenue is equal to its cost to assess the output for the project to be financially viable.  

• Sensitivity Analysis: Assessment of the effects of alterations in key variables, such as revenues, market conditions, and costs to project outcomes to evaluate the sensitivity of the project to different scenarios.  

• Instills Confidence in Stakeholders: Having knowledge about the financial implications of the project makes stakeholders confident. They include project teams, sponsors and investors  

• Optimization of Resources: Optimization of resources helps reduces prices, enhance project outcomes and improve efficiency.  

• Risk Mitigation: Knowing project risks helps in developing risk mitigation strategies and contingency plans to address uncertainties and challenges.  

• Better Decision Making: With accurate and reliable financial information, stakeholders can make better decisions about risk management, resource allocation and project investment.  

How to Calculate Building Valuation?

The current valuation of a building is calculated using the following methods:

Plinth Area Measurement Method

Plinth area measurement methodis easier than otherbuilding valuation methods. It involves the measurement of the plinth area and calculating the plinth-area rate for a similar building in the same location. Then, the cost of calculated.

Detailed Measurement Method

If the original record of the building is unavailable, the construction cost is calculated using a detailed measurement method for valuationand making a bill detailing the quantities for each work item.

Cost from Document Records

Current-day rates of materials and labor, bills of quantities, and estimates are used to calculate the cost of construction. If the construction cost is known, this cost is modified, using the percentage increase or decrease in the current day rate for labor and materials.

What is the Purpose of Building Valuation?

Sales and Purchases

As a seller, you can fix a reasonable price for your building. If you are a buyer, it can help you inform others.

Financing and Refinancing

If you are a lender, building valuation for financing can help you determine the loan amount that you can offer.

Taxation

Property taxes are based on the assessed taxation and building valuation

Insurance

Building insurance valuation helps insurance companies to ensure your proper coverage.

Development Method: In this method, the price of the land is calculated after considering the scope of development of the area. This helps in making a better buying decision.  

Comparative Property Valuation: In this method, the value of the similar property in the same locality is calculated. There can be variations in the property price on the basis of direction, size, interiors and legal issues.  

Land and Building Method: Under this method, the value of land and building is calculated separately. Then, these two values are added to calculate the land value. Other factors are also considered.