Techno-economic analysis

Techno-economic analysis

Techno-economic analysis is mainly concerned with the identification of project demand potential and the selection of the optimal technology suitable for achieving the project objectives. This analysis provides necessary information on which the project design can be based. It also indicates whether the economy is in a position to absorb the output of the project.


The size of the project and the technology used depend very much on the demand potential. Technology in a broader sense includes methodology or process. where the technical operations are not included. An optimal size and technology
enable to achieve the economies of scale. The techno-economic analysis makes an analysis of the market and technology.
Therefore an techho-economic feasibility of project has to be conducted before preparing a feasibility report of the project.
(a) Determination of project demand potential: Estimation of demand potential is the starting point of techno-economic analysis. Demand forecasting helps to firm up the qualitative parameters of the project and also provides a basis for selecting the optimal strategy for the project. It involves the determination of market characteristics, quantitative market analysis and appraisal of project demand
potential. The quantitative market analysis is made to estimate the industry demand of goods and service which a project may be expected to produce and to produce necessary information for developing project demand forecasts.

The analysis is taken up in three stages:

(i) Situation analysis
(i) Data collection and Compilation
(ii) Interpretation and Presentation
Then the data is used for projection of future demand.
Technical feasibility is carried out to find out the following information:
(a) Demand forecasting firstly helps to identify the qualitative parameters e.g. whether they are consumer goods or capital goods? What is the market competition?
(b) Market analysis, give the quantitative estimations. It involves the analysis of situation& alternatives; then the data collection & finally the interpretation of facts collected.
(c) Availability of needed materials & supplier; it analysis whether the materials & suppliers are available & where?

  • If delivery is at competitive /reasonable rates?
  • Do we need to import material?
  • What will be the lead time delay time delay? (Required for inventory to be maintained so that to keep production running fill the next delivery comes)- Are there any legal controls? (e.g. fire hazards for crackers, etc.)

(d) Personal required, to know whether skilled or unskilled labor is available at the site itself or we have to import/ hire from outside. The training requirement should also be considered (the cost of training, material wastage in training, etc).
(e) Infrastructure & facilities, like transportation (both for material & labor); storage go downs for inventory; power/fuel/water, sewage or even waste disposal and communication facilities should be adequate enough.
(b) Selection of optimal project strategy: Optimal project strategy refers to that combination of controlled variables which will ensure the achievement of the project objectives with the minimum expenditure of resources. As an infinite number of project strategies is available, selection of optimal strategy may appear to be difficult. This economical or optimal strategy is used to calculate how the minimum resources can be spent so as to achieve the objectives of projects in best ways. The optimal strategy may be selected by comparing the representative strategies and identifying the optimal a representative strategy which meets the project ends in the hand.

Various factors contributing to economic factors for deciding an optimal strategy are as follows:
(i) The market demand,
(i) Costing,
(iii) Raw Materials,
(iv) If the market is stable for,
(v) Capital requirement, to be checked for,
Whether entrepreneur can remain invested for long?

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