Group Assignment on project identification and

appraisal on selecting own project

PROJECT MSPM1_Group 11

IDENTIFICATION
& APPRAISAL
Group Assignment- Identifying a project
1. Project title, Type and Group members

Group:-MSPM1_Group11
Names:-
1. Fitsum geberu
2. Million Goraw
3. Misker Tameru

Title: Water Delivery Service Platform (WDSP)

Type: Profit Business

1
2. Introduction/Rationale
Water is the main source of life for human being. Human being cannot survive without
water. Water is used for drinking, bathing, cooking food and washing clothes, fruits,
vegetables. As we know, our city lacks full coverage of water supply for every household
and industries and on every construction sites. This may lead us to identify the problem
exists on supply. Partially three is some small groups are trying to solve the problem on
delivery service but not solved in an organized or educated manner. Currently delivery
companies are supplying water for home or residence tankers, construction sites, small
industries, hotels and restaurants, car wash shops, watering greenery area etc. One of
the good example is, construction sites need large amount of water consumption for
preparation of mortar, mixing of cement concrete and for curing work during
construction work. Currently in our city, some delivery companies deliver large volume
of water using pick up vehicles and freight trucks. It is good to start the business as a
problem solver but it needs assessment and careful design for managing requests and
technological solution to avoid the ambiguity on price and workflow. Hence, we are
trying to solve the problems underlying the following problems.

1. Water shortage
2. Lack of Business opportunity for vehicle or truck owners and water hole owners
3. No management of vehicles or trucks for the owners
4. Very Expensive Delivery cost
5. Variable/Non uniform delivery cost
6. There is no centralized water delivery platform
7. Inefficient and unmanaged trip of water delivery trucks
8. Difficulty in connecting the water supplier, water delivery, customer

Our aim is to play a middle role that can handle the demand, supply process through a
technological solution, and call center. The first task will be preparing the tech solution
and the call center. These solutions will be mobile applications and short code call

2
center for customer’s demand. Therefore, here are the steps and the workflow how our
project business flow works.

First, we will advertise the business for truck or vehicles owners and water well owners. If
they have the interest to work with us, we will start the registration process. Our IT staff
and managers should give orientations how the process and the application works,
whenever new users want to work with us.

On starting the business, there will be registration requirements from our company.
These requirements are owner identification data or documents and initial deposits for
starting the delivery process. The deposit helps them to get the job based on the
location they want to work.

The deposit is required from both the vehicle and water well owners. As soon as s
request or demands raised by the customers to the platform, the platform prioritize the
chance for selecting vehicle and water well owners. After one owner has the chance for
delivery, we will deduct our service fee from the deposit that they have done previously.
Customer also see the delivery cost through his /her phone as soon as the delivery done
at that time. The customer can pay for vehicle owners directly. The depositing process
should had to be made continuously until their balance get insufficient or when it
became zero balance.

Water well owners also have the opportunity to work with us. The owners also have the
opportunity to acquire new truck or vehicle owners, which is located or works nearby
their radius. It will make a big change to their business. This business will maximize their
working efficiency since they do not worry about searching for market, they will have
time to deliver and upraise their performance of delivering water in a daily or monthly
basis.

Finally, our aim is to facilitate the demand/supply problem by delivering water in short
time which we discussed earlier. In addition, our company’s aim is minimizing the
delivery time. Time is the most crucial parameter to our business. Therefore, our delivery
time will make us different from other companies and competitors. We will frequently
do performance measurement and appraisals based on delivery amount and time.

3
3. Stakeholder analysis of the project
The stakeholder is very important to company business decision and performs. As our
company (water delivery), service provide stakeholders are owners, managers, IT support
staffs, and employees of delivery company and secondary stakeholders include
government, customers and competitors, telecom service providers and truck owners

3.1. Primary stakeholders

Service providers are the primary stakeholders that delivery service idea and the owner
of the company. After establishing, the company there should be strategies and action.
The strategies and actions implemented by managers and IT department staffs. The
main pillars of the company are the IT staffs, which can handle many requests from
customers and keep the business as the managers planed. Other employees also the
primary stakeholders that they are exhaustively work or make action to achieve the
strategies. In this business, the two owners, which is the vehicle and water well owners,
are the main primary stakeholders without their participation and willingness the
business will not be started or established. The water well owners are also who
beneficiary form the project are and sales water for vehicle owners for delivery process.

3.2. Secondary stakeholders

The main secondary stakeholders are customers who needs water supply from our
company. The whole process of demand and supply are facilitated using call center and
mobile application technologies. This needs a telecom infrastructure for the platform to
properly function and to be consistent. In this scenario, Ethio-telecom is our service
provider and benefited from our project. It is also our secondary stakeholder in our
scenario.

4
3.3. The tertiary stakeholders
The main tertiary stakeholders are government and regulatory agencies. This includes
the agencies, which give a working license to the start of the business. Other
competitors that are doing the same business with our delivery company might be
affected by our organized and technological solution. Finally, AAWSA is the main source
of water, which supply water for our city. The company have a department, which supply
large amount of water for customers. We found out that, the service is not currently
operational. Even though the agency is the main government body, which will give us a
work, permit for our project. AAWSA will indirectly affected by our service. AAWSA is
categorized as the tertiary stakeholder for our business.

In summary, the stakeholder of the company includes all which parties involved in the
survival or progress of our company. Similarly, it also includes all those affected by the
organization’s performance, activities and policies among others. These include:

1. Governmental and regulatory agencies

2. Customers
3. Truck owners
4. Water well owners
5. Company managers/owners and IT staffs
6. Telcom service providers

5
Stakeholder Impact Influence What is How could How could Strategy for
Name important the the engaging
How much How much
to the stakeholder stakeholder the
does the influence
stakeholder? contribute block the stakeholder
project do they
to the project?
impact have over
project?
them? the project?
(Low, (Low,
Medium, Medium,
High) High)

IT staff and High High Working Establishing, Working Meetings on

company environment making plan below business
owners/ and office and efficiency appraisal and
managers equipment organizing job details
and official the company
license Facilitating
the
technological
Services

Truck or High High Reliable and Truck owner Working Advertisement

vehicle and clear service delivers below orientation
water well of our water to efficiency about the
owners company customers and working service and
without
Registration Water well benefits
contacting
to our owners sale
call center
organization large volume
/our
of water to
company
vehicle
owners

Customers High High Mobile Demanding Not using Detail

application water our explanation
for request or through application and
or short advertisement
Short code Our mobile
code call about the
call application
service
and call
center

6
Telcom service low High Commitment Providing Stop Detail
providers from our best service providing explanation
company and on internet internet and proposal and
paying bills and call call service different
on time license

Government Medium High Commitment Providing Banning Detail

from our license and license explanation
company and work proposal and
permits different
paying bills
license
on time

4. Ex-ante Project Analysis

4.1. Situation analysis

Even through there are no Competitors in the market we consider different scenarios to
penetrate the market by working with Collaborators (suppliers, distributors and network
service providers). To achieve our goals and objectives, SWOT (strengths, weaknesses,
opportunities, and threats) analysis are made to identify and analyze internal strengths,
weaknesses, external opportunities, and threats that shape current and future
operations and help to develop our company strategic goals.

 Strength
o Low fixed investment
o Customer satisfaction
o Dynamic pricing
o Growth rate
 Weakness
o Highly dependent on network (telecom) infrastructure

7
 o Barrier to market entry
 Opportunity
o Increase internet or technology penetration in to the society
o Transportation and logistics shortage
o Dissatisfaction with unorganized market
o
 Threat
o Low commission
o Revolt from existing market
o Government regulations
o Customers retention

4.2. Market/demand analysis

We observe that there is a high demand in the market, as stated in the problem
statement. There is a traditional way of connecting customers, distributers and
water well owners and the time duration and hustle to get the service is very
high, since there is no substitution for the supply and there is growth in
construction, green area and hotel industries in the city there is high demand on
the market

4.3. Financial analysis

4.3.1.Cost of project
The initial investment of the project is 2 million.

4.3.2.Means of financing
Out of the total 2 million cost of project, 1.5 million is out of or sell of stock and the
other 500000 birr are out of the cash earned from of the share members and the
estimation of their contribution in knowledge and work activities.

4.3.3.profitability projection
Net Present Value (NPV)

Cash inflow for the first year is estimated from 10% commission from water well owners
and 10% in every KM traveled from every truck owner. It is assumed that 100 trucks
subscribed to the platform and every truck is traveled 10 trips, which are 20 km in
8
distance. Note that the average volume for every truck is 16m3. So 16m3 water *100
truck * 10 trips gives 16000m3 water per day and 10% of this gives 1600 commission
birr per day 20km * 100 truck * 10 trips and 10% of this will give a commission of 2000
birr per day. In total per day 2000+1600=3600 birr per day. Based on this we assumed
that in the first year the cash inflow is 3600*365.25=1,314,900 birr

Discount Rate: 7%

Initial Investment/cost of capital: 2 million

Cash inflow
Years 0 1 2 3 4
Cash inflows(10%
increase in market
demand) 1314900 1446390 1577880 1709370
PV of cash inflow=
Cash
inflows/(1+discount
rate)^years 1228879 1263333.042 1288020.094 1304070
cumulative cash
inflow 1228879 2492211.547 3780231.641 5084302

Cash outflow
Years 0 1 2 3 4
Initial Investment 2000000
Advertising &
Promotion 40000 40000 40000 40000
Software Maintenance 5000 5000 5000 5000
Office Supplies 100000 0 5000 5000
Office Rent 20000 22000 24200 26620
Salaries, Benefits &
Wages 288000 288000 288000 288000
Telecommunication,
Networking , Internet
& Utilities 2000 2000 2000 2000
Transport 48000 48000 48000 48000
Cash outflows 503000 405000 412200 414620
PV of cash outflows =
Cash 2000000 470093.5 353742.685 336477.9849 316311.6

9
outflows/(1+discount
rate)^years
Cumulative cash
outflows 2000000 2470093 2823836.143 3160314.128 3476626

Cash flow Initial Cash inflows each year - Cash outflows each
Investment year
(2000000) 811900 1041390 1165680 1294750

NPV (Net Present Initial (Total Cumulative Cash Inflow- Total Cumulative Cash
Value) Investmen outflows)
t
NPV 5084302-3476626=1607766

Decision: NPV>0 which is positive equal to 1607676 and the decision is accept
project

Internal Rate of Return (IRR)

 With discount rate 7% NPV is 1607766
 with discount rate 20% NPV is 698751.35
 with discount rate 30% NPV is 224651.59
 with discount rate 32% NPV is 146047.5
 with discount rate 36% NPV is 1896.55
 with discount rate 37% NPV is -31654.35
In conclusion, the IRR is between 36% and 37% using the absolute value of the NPV of
36% and 37%,
To show how PV at 36% is 1896.55:-

Cash inflow
Years 0 1 2 3 4
Cash inflows (10%
increase in market
demand) 1314900 1446390 1577880 1709370
PV of cash inflow=
Cash
inflows/(1+discount
rate)^years 966838.2 782001.5138 627273.9416 499666.7
cumulative cash
inflow 966838.2 1748839.749 2376113.691 2875780

10
Cash outflow
Years 0 1 2 3 4
Initial Investment 2000000
Cash outflows 503000 405000 412200 414620
PV of cash outflows =
Cash
outflows/(1+discount
rate)^years 2000000 369852.9 218966.263 163866.9092 121197.8
Cumulative cash
outflows 2000000 2369853 2588819.204 2752686.113 2873884

Cash flow Initial Cash inflows each year - Cash outflows each
Investment year
2000000 811900 1041390 1165680 1294750

NPV (Net Present Initial (Total Cumulative Cash Inflow- Total Cumulative Cash
Value) Investmen outflows)
t
NPV 2875780-2873884=1896.55

To show how PV at 37% is -31654.35:-

Cash inflow
Years 0 1 2 3 4
Cash inflows (10%
increase in market
demand) 1314900 1446390 1577880 1709370
PV of cash inflow=
Cash
inflows/(1+discount
rate)^years 959781 770627.0979 613638.0341 485236.9
cumulative cash
inflow 959781 1730408.12 2344046.154 2829283

Cash outflow
Years 0 1 2 3 4
Initial Investment 2000000

11
 Cash outflows 503000 405000 412200 414620
PV of cash outflows =
Cash
outflows/(1+discount
rate)^years 2000000 367153.3 215781.3416 160304.7112 117697.7
Cumulative cash
outflows 2000000 2367153 2582934.626 2743239.337 2860937

Cash flow Initial Cash inflows each year - Cash outflows each
Investment year
2000000 811900 1041390 1165680 1294750

NPV (Net Present Initial (Total Cumulative Cash Inflow- Total Cumulative Cash
Value) Investmen outflows)
t
NPV 2829283-2860937=-31654.35

 The sum of the absolute values of NPV's obtained:-

|1896.55| + |-31654.35|=33,550.9
 Calculate the ratio of the NPV of the smaller discount rate to the sum obtained
above
1896.55/33550.9=0.06
 Add the number in above result to the smallest discount rate.
36+0.06= 36.06 so discount rate is 36.06%

Decision: IRR> Discount rate (7%) which is equal to 36.06% and the decision is
accept project

Benefit Cost Ratio or Profitability Index (PI)

Cash flow Initial Cash inflows each year - Cash outflows each
Investment year
(2000000) 811900 1041390 1165680 1294750

PI =81190/(1.07) + 1041390/(1.07)2 + 1165680/(1.07)3 + 1294750/(1.07)4

2000000
PI= 75878.5 +909590 + 951542 + 987759
2000000

12
PI=1.46
Decision: PI > 1 which is equal to 1.46 and the decision is accept project

Discounted Payback Period

Note: The cash flow is uneven

Cash flow Initial Cash inflows each year - Cash outflows each
Investment year
(2000000) 811900 1041390 1165680 1294750
Cumulative (2000000) (1188100) (146710) 1018970 2313720

PBP=A+B/C

PBP=3(1165680)+146710

1165680

PBP=3.13 years

4.4. Technical analysis

We identify the available and appropriate technologies to provide the service and
have technology experts on hand. To facilitate the collaboration between the
main (primary) stakeholders, as a company we exist virtually, the question is the
company locates is not our concern.

4.5. Socio-economic analysis

 By minimizing the trip between customers (construction sites, hotels and
green areas) and suppliers (water well owners), the companies’ service
reduce fuel consumption.
 By facilitating the delivery process the requested service delivered fast and
on time, thus the company guarantee customer satisfaction and save time.
 Based on those facts, the company contribute positive influence to the
society and add additional value to economy.

4.6. Environmental analysis

13
 There is no negative impact caused by the company since the company played a
broker role between the primary stakeholders and the company existed virtually.

5. Conclusion

As we discussed in the previous sections, we tried to look on the essential and related
analysis that our businesses need. We made some brainstorming ideas in the process of
identifying the project. Our base line was solving a real and tangible existing problem,
which is clear and observed in our local areas. We identify this project is also a business
opportunity for us. All stakeholders is identified that are directly and indirectly affected
by the project.

After assessing and analyzing the situation, market/demand, financial, technical, socio-
economic and environmental analysis the project is good to go for proposal. Using all
the methods of financial analysis the project is accepted after it passes by the all
criteria's like PVP, IRR, IP and payback period.

Because the project is virtual, has no impact on the environment, and has an impact for
socio-economic development and we conclude that this project is a good candidate for
investment and sponsorship.

14