You cannot get to a successful end without getting the basics right. The same principle applies to basic inputs of Forex trading project evaluation. You need to devote a considerable amount of time to get these steps right. Once that is taken care of, the other pieces will automatically fit in the jigsaw puzzle.
Without wasting time, let’s dive right in.
Assess initial investment
While determining the initial investment, keep in mind that the same fund will also fuel the project lifecycle until it is ready to yield returns. If the initial investment is not enough to fund the project for one complete cycle, the project is very likely to fail midway.
Product Demand
Even the finest product is worth nothing if there is no demand for it in the market. Calculating product demand will help you plan revenue inflow better. If there isn’t an extant demand for the product, it often needs to be created externally. In other cases, you need to carve your share out of the existing demand base.
The selling price of the product
A badly priced product has very little chance of succeeding in the open market. It might perform in niche markets, but even there the scope becomes restricted.
The best way to determine price is to assess what your competitors are charging for the same or similar products. However, the goal is not necessarily achieving the lowest possible selling price. It has to be in the affordable range but be careful to not fall into the trap of ‘low price – low quality’.
The cost price
Cost price has two basic components – fixed costs and variable costs. It is easier to take care of fixed costs since they are predictable. Calculating variable prices require you to use multiple inputs and arrive at the most accurate conclusion. You should always allow room for flexibility in your variable cost assessments since the inputs can fluctuate randomly.
Project lifecycle
Determining the lifecycle of a project can range from being easy to being impossible. It depends on a number of factors: the nature of your product, the physical location of your manufacturing units, political stability, and a lot more. It is particularly difficult for MNCs with off-shore manufacturing units. However, arriving at a rough estimate will be very helpful in guaranteeing the success of the project. It is much easier for projects with definite life cycles.
Estimated resale value
Resale value, or salvage value, is the last step of cost assessment. For some components, you have to set the salvage value at 0. While salvage value is dependent on a lot of variables, arriving at a reasonable estimate is often enough.
Fund transfers
There are many legal and technical difficulties in transferring funds from the subsidiary to the parent company. Depending on the local regulations of the subsidiary, companies can be forced to spend money regionally. While that reduces cash flow to the parent, it makes the subsidiary more self-sufficient.
Tax laws
Most projects need a dedicated team of financial experts to take care of taxation. Defaulting on taxes can be disastrous for the project, and might happen as a result of carelessness. Consider hiring tax experts as a part of the initial investment and do not treat it as an afterthought.
The volatility of exchange rates
Timing fund transfers on the basis of exchange rates will save your project a significant amount of money. Exchange rates are easier to predict in the short term. In the long run, however, there are too many variables in action. Aim for flexibility to minimize losses due to exchange rates.
Required rate of return (RRR)
The required rate of return depends largely on the investor’s risk-taking ability. Also, keep in mind that RRR does not account for inflation. Consider calculating the overall return in the market, risk-free return rate, and stock market volatility to get a good estimate of RRR.
Conclusion
A successful project life cycle depends on many variables. While some of them are beyond prediction, make the best of what you can assess. Diligently following the project evaluation steps will set you up for success. Most of these components require specialized expertise, without which you may be killing the project’s potential.