Project / Business Risk Assessment through TEV Study

Background

First things first. What is a TEV Study and Who am I to preach about it?

To answer the second question first, I would say that,

After spending over 17 years in carrying out various kinds of management consulting assignments and executing a few hundred TEV assignments, I believe to have the necessary competence and skills in this domain to share.

It gives me pleasure in sharing knowledge with people who are interested.
The topic – TEV study – is extremely interesting and consists of many fine business elements which determine.
At different times in my career, I have come across many basic questions related to TEV study. Some of these questions are,

What is a TEV study?,
Why should I do it?
Why should I share my project or business information with you?
What if you disclose my information to others?
Why should I pay you for the study, when you take my data and give me the report?
When I pay you the fee, why shall you not give me a favorable report?
TEV studs are Audits and why should you call it Management Consulting?
Etc… Etc…. Etc…. And the list is unlimited.

To answer all such questions, I have planned to publish a series of interrelated posts on this topic, so as to cover the crucial aspects of executing a TEV assignment.

Now, let us come back to my first question.

What is TEV Study?

Techno Economic Viability study or TEV study as it is commonly known in the banking domain is a systematic approach towards understanding the technical and economic viability of a project.

Let’s run through an example,

Suppose you, as an entrepreneur, are planning to set up a project, say a facility to manufacture a product or offer a service.
- This will need some investment and let us believe that this investment will be to the tune of Rs. 20 million.
- It is a lot of money and most probably you will not be able to fund the entire money from your own sources. Even if you fund it, you would like to know if you can run it successfully and get your money back with a good return.
- You prepare a concept plan for the project and approach a funding agency. You expect this agency to fund a portion of your total capital expenditure required for the project.
You may approach an investor or a bank to extend financial support. The financer would also want to know,
- If the project is fundable,
- Whether you would be able to repay the principal and interest as per agreed schedule,
- How much return you will get from the investment,
- The extent of social and environmental impact your project will have.
Decision making by the funding agency,
- The funding agency may be experts in financial management, but they may not have expertise in marketing or technical aspects.
- In such a scenario, the funding agency may seek advice from expert agencies to review the concept plan. In some of the cases, the funding agency may define the scope of the work to be covered under the review.
The TEV Consultant may go through your project concept and submit a comprehensive report to the funding agency.
Based on your report and internal analysis of the funding agency, the agency may take the exposure in your project. It is important to remember that a viability report alone may not be sufficient to get the investor acceptance. The investor may take up multiple other assessments before taking a decision.

Importance of TEV Study?

The idea behind taking up a TEV assignment is to understand if you as a promoter/ developer will be able to implement the project successfully and run it profitably for a longer period of time. As the name suggests, the assessment covers a predefined set of scope items covering technical, market and financial aspects of the project. And the outcome explains the Viability and the risk elements in the project.

In general, every bank takes up a TEV study either internally by the bank’s own experts or through an external agency to have a third party view of the project. It is a part of project and business risk assessment. Even fund houses and equity investors assign the task of TEV assessment through external agencies – often through a stringent selection mechanism, wherein the team of consultant’s experience becomes an important criterion.

Because of the fact that the investment or debt exposure decision is taken based on these TEV reports,

It must be prepared by appropriately skilled and competent people,
The scope of the study must be meticulously built factoring every possible risk perception.
The investigation must be built on an appropriate level of detailing and thorough scrutinisation of every possible component.
Above all, the highest standards of professionalism and ethical behavior must be adopted.

Summary

The role of a TEV consultant is extremely important in establishing the viability of a project as both individual and social aspects are bound in successful implementation/ operation of a business. While a well implemented and operated project may generate employment & contribute to the economy and environment, an inappropriate project may cause loss of public money and affect the environment.