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4.5 Viability

4.5.1

Project viability should be assessed to help ensure that public money is not wasted on projects that will fail prematurely. There should be evidence of sound business planning, which requires thorough analysis of:

  • the anticipated cash flows, and
  • the planned financing, marketing and management arrangements.
4.5.2

In cases where the aims are primarily economic, assistance should be given only to firms which are themselves considered to be viable. This requires appraisal of:

  • the firm's financial position; and
  • the quality of its management,

both in general terms and with specific regard to those charged with carrying out the project. Any previous track record may help to inform judgement of viability.

4.5.3If assistance is awarded, it should generally be just sufficient to enable the project cash flows including subsidy to satisfy commercial investment criteria. In these cases, a viable project is one which, having received assistance on a once for all basis, is expected to earn sufficient profits to be self-sustaining without continuing subsidies other than those available as of right to all eligible enterprises. There should be a strong presumption against projects receiving assistance more than once, because this would encourage grant-dependency and poor management in both the assisted firm and the responsible Department.
4.5.4

In the case of financially-assisted projects pursued primarily for social or environmental rather than economic aims, the viability criterion applies less strictly, to the extent that such projects need not be expected to achieve overall financial profitability. However:

  • any commercial elements of social or environmental projects should still be expected to achieve financial profitability; and
  • in all cases it should be confirmed that there is sound business planning and specifically that adequate arrangements for finance and management are in place.
4.5.5

Sustainability should be considered. Where funding is awarded for a limited period, consideration should be given to a suitable 'exit strategy'. In particular, the assumptions about subsequent funding should be made clear. If it is assumed that funding will continue, confirmation of agreement to this should be provided from the relevant funding body.

Business Plan

4.5.6

Applications for grant assistance should generally be supported by a Business Plan in addition to an Economic Appraisal, covering the following key elements:

Management Plan

The key management personnel, their roles, their relevant experience and qualifications, and the proposed organisational structure should be identified and explained fully.

Financial Projections

The estimated financial costs and revenues arising from the proposal should be set out year-by-year over its life. This should be disaggregated to show all individual cost and revenue items. All financial assumptions should be stated.

A financial NPV should be calculated and viability should be assessed by refernce to the commercial returns achieved by comparable businesses facing a similar level of risk. Currently the normal range of rates is 5-10% but rates as high as 15% may be appropriate for the very highest risk businesses.

Funding Plan

The financial position of the applicant should be analysed, including assessment of its ability to contribute own funds to the proposal. Where applicable, the most recent statement of accounts should be supplied.

All sources of funding should be identified, including names of relevant funding bodies, the corresponding amounts of funds, and their phasing. The status of each funding application should be indicated e.g. Confirmed, Awaiting, Response, etc.

Marketing Plan

The current and projected market for the planned productsor services should be assessed. Specific planned marketing activities should be identified and costed.

Monitoring and Evaluation Plan

The proposed arrangements for monitoring and evaluationshould be explained, including who will do these activities, what factors will be examined and when.

Gateway Reviews

In larger projects, the Department responsible for the assistance may wish to mandate the application of the Gateway Review process as an effective assurance mechanism.

Read on to Treatment of European Union Financial Assistance

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