Feasibility Study

Introduction to Feasibility Study

• Learning objectives :

1. Determine the economical meaning of feasibility

study.
2. Important of Feasibility Studies.
3. The Components of a Feasibility Study
4. Reasons Given Not to Do a Feasibility Study
5. Reasons to Do a Feasibility Study
 Definition of Feasibility Studies:
• As the name implies, a feasibility study is an
analysis of the viability of an idea. The
feasibility study focuses on helping answer the
essential question of “should we proceed with
the proposed project idea?” All activities of
the study are directed toward helping answer
this question.
Definition…

• Before you begin writing your business plan you

need to identify how, where, and to whom you
intend to sell a service or product. You also need
to assess your competition and figure out how
much money you need to start your business and
keep it running until it is established.
Definition…

• Feasibility studies address things like where and

how the business will operate. They provide in-
depth details about the business to determine if
and how it can succeed, and serve as a valuable
tool for developing a winning business plan.
 Importance of Feasibility Studies

• List in detail all the things you need to make

the business work;
• Identify logistical and other business-related
problems and solutions;
• Develop marketing strategies to convince a
bank or investor that your business is worth
considering as an investment; and
• Serve as a solid foundation for developing your
business plan.
Importance ….

• Even if you have a great business idea you still

have to find a cost-effective way to market and
sell your products and services. This is
especially important for store-front retail
businesses where location could make or break
your business.
Importance….

• If the results show that the project is not a

sound business idea, then the project should
not be pursued. Although it is difficult to
accept a feasibility study that shows these
results, it is much better to find this out
sooner rather than later, when more time and
money would have been invested and lost.
 The Components of a Feasibility Study

• Market Feasibility:

• Technical Feasibility:

• Financial Feasibility:

• Organizational Feasibility:

• Conclusions:
Part 1 : The Components of a Feasibility Study

• Market Feasibility: Includes a description of

the industry, current market, anticipated future
market potential, competition, sales
projections, potential buyers, etc.
Market feasibility …

• The primary area that the feasibility study

needs to address is potential market
opportunities. If an adequate level of demand
does not exist for the product and the decision
maker does not know how to differentiate its
product so that it can compete with
established industry players, then the
proposed venture should not be pursued.
Questions of Market feasibility …

• What type of industry is the decision maker

planning to enter? What are its primary features?
• What are the possible target markets for the
decision maker ’s product? What demographic
characteristics do they possess? How large are
these markets? Where are they located? Is the
market expected to grow in the future?
Continue :Questions of Market feasibility …

• Who are the decision maker ’s competitors in this

market? How large are these competitors? How
established are they? How do they price their goods?
How will these competitors react to the entrance of
the decision maker ?
• Will the decision maker be competing in a mature
industry or a growth industry?
Continue :Questions of Market feasibility …
• How will the decision maker differentiate its product
from those of its competitors? What are the
competitors’ strengths and weaknesses, and how
would the decision maker compare against them?
How does the decision maker plan on gaining market
share?
• What is the projected market share for the decision
maker ?
Data of Market feasibility …
• Data that can help to answer these questions may be
found in already-published information or through
primary research activities such as market surveys
conducted on behalf of the decision maker . Relevant
information may be found through various sources
such as government statistical publications, trade
journals, industry reports, or companies . The
Internet has also opened up new routes to obtaining
information.
Part 2 : The Components of a Feasibility Study

• Technical Feasibility: Details how you will

deliver a product or service (i.e., materials,
labor, transportation, where your business will
be located, technology needed, etc.).
Importance of technical feasibility
• What type of equipment and technology will the
business need to produce its product? What are the
costs involved? This includes both the initial purchase
and installation costs of the equipment as well as the
operational costs of running the equipment.
• Who are the potential suppliers of this equipment?
Where are they located? What sort of service and
warranties do they provide? How long will it take to
acquire the equipment and begin operations?
Importance of technical feasibility
• Based on its projected business volume, how much
raw product will be required by the decision maker ?
What are the quality specifications? Will the decision
maker have a sufficient membership base that can
provide the raw materials?
• What are the possible locations for the decision
maker ’s facility? What size of facility is needed? What
are the costs of the building? Does the proposed
location have adequate access to infrastructures and
services such as major highways, railways, and
utilities? Will the decision maker build its own facility,
or purchase an existing location?
questions of technical feasibility…
• Where will the facility be located relative to the
decision maker ’s customers? Who will be responsible
for the transportation of goods between the facility
and the market? What are the transportation costs
involved?
Part 3 :The Components of a Feasibility Study

• Financial Feasibility: Projects how much start-

up capital is needed, sources of capital, returns
on investment, etc.
Questions of financial feasibility:
• What are the total start-up costs required in order
to begin operations? For instance, what are the
capital costs of the land, plant and equipment,
and other start-up costs such as legal and
accounting costs?
• What are the operating costs involved? These
include the daily costs involved in running the
business, such as wages, rent, utilities, and
interest payments on outstanding debt. These will
determine the cash flow requirements of the
decision maker .
Continue : Questions of financial feasibility…

• Based on the estimated demand, what are the

decision maker ’s revenue projections? How will the
decision maker determine its pricing
arrangements?
• What are the possible sources of financing for the
decision maker ? Who are potential lenders? What
will be their required terms and limitations of
borrowing?
• Based on the estimated revenues and costs, what is
the projected profit(loss) of the decision maker ?
What is the break-even point?
Part 4 : The Components of a Feasibility Study

• Organizational Feasibility: Defines the legal

and corporate structure of the business (may
also include professional background
information about the founders and what skills
they can contribute to the business).
Part 5 : The Components of a Feasibility Study

• Conclusions: Discusses how the business can

succeed. Be honest in your assessment
because investors won’t just look at your
conclusions they will also look at the data and
will question your conclusions if they are
unrealistic.
Conclusions…

• The conclusions of the feasibility study should

outline in depth the various alternatives
examined and the implications and strengths
and weaknesses of each. The project leaders
need to study the feasibility study and
challenge its underlying assumptions. This is
the time to be skeptical.
Conclusions…
• Don’t expect one alternative to “jump off the page”
as being the best one. Feasibility studies do not
suddenly become positive or negative.
• As you accumulate information and investigate
alternatives, neither a positive nor negative outcome
may emerge. The decision of whether to proceed
often is not clear cut.
• Major stumbling blocks may emerge that negate the
project. Sometimes these weaknesses can be
overcome. Rarely does the analysis come out
overwhelmingly positive.
Conclusions…

• Remember, it is not the purpose of the

feasibility study or the role of the consultant to
decide whether or not to proceed with a
business idea, it is the role of the project
leaders.
 Reasons Given Not to Do a Feasibility Study

• Project leaders may find themselves under

pressure to skip the “feasibility analysis” step
and go directly to building a business.
Individuals from within and outside of the
project may push to skip this step.
Continue : Reasons Given Not to Do a
Feasibility Study…
• We know it’s feasible. An existing business is
already doing it.
• Why do another feasibility study when one was
done just a few years ago?
• Feasibility studies are just a way for consultants
to make money.
Continue : Reasons Given Not to Do a
Feasibility Study…
• The feasibility analysis has already been done
by the business that is going to sell us the
equipment.
• Why not just hire a general manager who can
do the study?
• Feasibility studies are a waste of time. We
need to buy the building, tie up the site and
bid on the equipment.
Continue : Reasons to Do a Feasibility
Study
• Gives focus to the project and outline alternatives
• Narrows business alternatives
• Surfaces new opportunities through the investigative
process
• Identifies reasons not to proceed
• Enhances the probability of success by addressing and
mitigating factors early on that could affect the
project
• Provides quality information for decision making
Continue : Reasons to Do a Feasibility
Study
• The feasibility study is a critical step in the business
assessment process. If properly conducted, it may be
the best investment you ever made.
• Helps to increase investment in the company
• Provides documentation that the business venture
was thoroughly investigated
• Helps in securing funding from lending institutions
and other sources
 Summary:
• Feasibility studies contain comprehensive,
detailed information about your business
structure, your products and services, the
market, logistics of how you will actually
deliver a product or service, the resources you
need to make the business run efficiently, as
well as other information about the business.