WEEK ASSIGNMENT 2
Student’s name: Hua Hoan Hao
Class: K45-ADC01
ID:31191025243
Question: Explain why in a pre-feasibility study, for benefits a downward biased estimate
should be used and for costs, an estimate that is biased up should be used?
Answer:
The main reason is because pre-feasibility studies mostly use secondary information from
available information of other similar projects. Therefore, such information is not reliable
enough to apply to the current project.
People tend to pay attention to the successful and flashy things, so it’s inevitable that we
get secondary data from successful projects. These projects often have great benefits and
low costs, which is hardly true for the project we are working on. Therefore, we should use
information that is downward biased estimate towards benefits, and biased up towards costs
so that pre-feasibility studies provide us with an objective view to see if the project is still
attractive or not.