How to determine the economic viability of a project

When we are about to embark on an exciting project, however much we may be overcome with emotion, the first thing we must determine is its economic viability. Without having previously determined it, it is very likely that in the end all we will end up with is a loss.

In this post we are going to look at a series of aspects that will help us to determine the economic viability of a project.

Economic viability in terms of costs

The costs are all those expenses that we are going to have in order to start up the project. They can occur at two points in time:

1. Formerly the project starts to generate benefits.
2. While the project is generating benefits.

So we must take them both into account.

On the other hand, we must also understand costs in their broadest sense. In other words, we should not only focus on the monetary aspect, but there are two other really important aspects:

1. The time. As the old saying goes, time is money. On many occasions, even if a project provides us with benefits, it is not worth carrying it out because it is too time-consuming. We must therefore calculate how much our hour's work is worth, how many hours we are going to invest and determine whether the project is economically viable.
2. The emotions. There are cases of projects that generate sufficient benefits and consume a manageable amount of time, but are not worthwhile in emotional terms. The stress, nerves, lack of sleep and appetite or the discouragement they produce do not compensate for the benefits we derive from them.

In short: a project that is going to involve more costs than benefits, i.e. that will have little return on investment, In general, it is not a project that has a good economic viability.

Economic viability according to our target

The target or target audience is the profile of people we are targeting. Some of the parameters we use when defining it are:

• Age.
• Sex.
• The profession.
• Place of residence.
• Habits.
• Hobbies.

And another very important determinant regarding economic viability: the level of income. In general, if we address a target with a low level of income, we will need a greater number of customers to buy from us than if we address a target with a high level of income.

Therefore, the target group we are addressing also has an influence on the economic viability of a project.

Economic viability based on market trends

We understand by market trends those ups and downs in the purchase and sale of different products or services. In this sense, the fashions influence a lot: when a product is in fashion, it is bought much more than when it is not.

The economic viability of a project will be determined by the moment at which we launch it on the market. If our product is in a sector with a growing market trend, it will have a greater economic viability than if it is in a sector with a decreasing trend.

Economic viability in terms of competition

Of course, in an article on economic viability, the economic factor could not be missing. competence. Before launching a project on the market, we must analyse the number and power of each of our potential competitors.

This is influenced by the so-called market saturation. If there are many companies offering the same product or service, we will understand that this sector is saturated. On many occasions, even if the market trend in that sector is growing, it is not worth entering it if there is a high level of saturation.

So when you want to launch a project on the market, remember to determine its economic viability. If you study and analyse the four factors discussed above and make your decisions based on them, your chances of making a profit will multiply.