Food-Processing-Plant-Design-layout

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Food Processing Plant Design & layoutthe net investment, which is gross capital less any capital recovered from the sale ortrade of existing assetsthe operating cash flows, which are the after-tax cash flows resulting from theinvestmentthe economic life of the venture, defined as the time period during which benefitscan be obtained from the venture andthe appropriate discount rate.With the relevant cash flows computed for the venture, the next step is to decide whichinvestment decision criterion to use for the acceptance or rejection of ventures as well astheir ranking. Theoretically, the net present value criterion is the best measure ofprofitability of the investment decision criteria used to evaluate new venture ideas, theinternal rate of return appears as the technique to be of prime importance. The paybackperiod is used primarily as a supplementary technique.3.2.5 Sensitivity and risk analysisRecognizing that the venture profitability forecast hinges on future developments whoseoccurrence can not be predicted with certainty, the decision- maker may want to probefurther. The analyst may want to determine the impact of changes in variables such asproduct price, raw material costs, and operating costs on the overall results. Sensitivityanalysis and risk analysis are the techniques that allow the analyst to deal with suchproblems.The purpose of sensitivity analysis is to identify the variables that most affect the outcomeof a venture. Sensitivity analysis is useful for determining consequences of a statedpercentage change in a variable such as product price. It involves specifying the possiblerange for the variable, such as price, and calculating the effect of changes in this variable toprofitability. With such a calculation, the analyst can determine the relative importance ofeach of the variables to profitability. However, only risk analysis can provide anyindication of the likelihood that such events (change in product price) will actually occur.Risk analysis takes into account the recognized fact that variables, such as product price,depend on future events whose occurrence can not be predicted with certainty. Hence,investment decision situations can be characterized with respect to certainty, risk anduncertainty. Since certainty seldom exists for future returns on investment, only risk anduncertainty are of interest. Uncertainty is used to refer to an event, such as technologicalbreakthrough resulting in obsolescence, that is expected to take place although theprobability of its occurrence cannot be forecasted during the venture's lifetime. Risk refersto a situation in which a probability distribution of future returns cannot be established forthe venture. The riskiness of the venture can be defined as the variability or dispersion of itsfuture returns. In practice, there are usually several variables and the aggregate risk of theventure cannot be determined easily because it is composed of numerous risks. Thepurpose of risk analysis is to isolate the risks and to provide a means by which variousventure outcomes can be reduced to a format from which a decision can be made. A moredetailed coverage can be found under profitability analysis.20 www.AgriMoon.com
Food Processing Plant Design & layout3.3 Feasibility cost estimatesA lot of guess work goes into feasibility cost estimate. Attempts are always made to collectand update historical figures with additions for escalation / inflation and local factors,based on statistics and guess work. In such a situation what is expected is a rule of thumbor an order of magnitude estimate. The order of magnitude estimate is derived from thecost reports of completed ventures. Probability of this estimates accuracy is generallybetween +25, and 40 percent. Preliminary control estimate is often used in the feasibilityreport.This is prepared, generally, after the completion of the process design and major equipmentlisting. Accuracy of this estimate may vary between + 15 and 25 present. Endeavour isusually made to achieve a +20 present accuracy in the feasibility report estimates. For a ruleof thumb, the following are the percentages of the venture cost factors:-Project development and detailed project report (DPR) preparation - 2 %-Engineering and design - 13 %-Brought out materials and equipment-55 %-Fabrication and construction- 30 %Depending on the type of venture, sector and complexity, these can vary on either side.3.4 Break-Even AnalysisBreak-even analysis is a technique widely used by production management andmanagement accountants. It is based on categorizing production costs between those whichare "variable" (costs that change when the production output changes) and those that are"fixed" (costs not directly related to the volume of production).Total variable and fixed costs are compared with sales revenue in order to determinethe level of sales volume, sales value or production at which the business makes neithera profit nor a loss (the "break-even point").“A breakeven analysis is used to determine how much sales volume business needs tostart making a profit.”3.4.1 The Break-Even ChartThe break-even chart is a graphical representation of costs at various levels of activityshown on the same chart as the variation of income (or sales, revenue) with the samevariation in activity. The point at which neither profit nor loss is made is known as the"break-even point" and is represented on the chart below by the intersection of the twolines:21 www.AgriMoon.com
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