1. what is a feasibility study


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1. what is a feasibility study

  1. 1.  What is a Feasibility Study? Differentiate Feasibility Study with ABusiness Plan. What are the reasons why we should do aFeasibility Study?
  3. 3.  is an analysis of the viability of an idea. focuses on helping answer the essentialquestion… “should we proceed with the proposed projectidea?” All activities of the study are directedtoward helping answer this question.
  4. 4.  looks at the viability of an idea with anemphasis on identifying potential problemsand attempts to answer one main question: Will the idea work and should you proceed withit?
  5. 5.  Is a preliminary study undertaken before the real workof a project starts to ascertain the likelihood of theprojects success. Is an analysis of all possible solutions to a problem anda recommendation on the best solution to use. involves evaluating how the solution will fit into thecorporation. can decide whether an order processing be carriedout by a new system more efficiently than theprevious one.
  6. 6.  could be used to test a new working system,which could be used because: Although few businesses would not benefit from acomputerized system at all, the process ofcarrying out this feasibility study makes thepurchaser/client think carefully about how it isgoing to be used.
  7. 7.  Before you begin writing your feasibilitystudy… identify how, where, and to whom you intend tosell a service or product assess your competition figure out how much money you need to startyour business and keep it running until it isestablished.
  8. 8.  Feasibility studies address things like whereand how the business will operate. They provide in-depth details about thebusiness to determine if and how it cansucceed, and serve as a valuable tool for developing awinning business plan.
  9. 9.  Feasibility studies can be used in many waysbut primarily focus on proposed businessventures.
  10. 10.  Anybody with a business idea should conducta feasibility study.. to determine the viability of their idea beforeproceeding with the development of a business.
  11. 11.  Time Money Heartache
  12. 12.  generate adequate cash-flow and profits withstand the risks it will encounter remain viable in the long-term and meet the goals of the founders.
  13. 13. > a start-up business> the purchase of an existing business> an expansion of current business operations or> a new enterprise for an existing business.
  14. 14.  A feasibility study is only one step in the business idea assessment ,and business development process
  15. 15.  Economic Feasibility Study This involves questions such as whether the firmcan afford to build the system, whether itsbenefits should substantially exceed its costs, andwhether the project has higher priority than otherprojects that might use the same resources.
  16. 16.  Technical Feasibility Study This involves questions such as whether thetechnology needed for the system exists, howdifficult it will be to build, and whether the firmhas enough experience using that technology.
  17. 17.  Schedule Feasibility Study This involves questions such as how much time isavailable to build the new system, when it can bebuilt (i. e. during holidays), interference withnormal business operation, etc.
  18. 18.  Organizational Feasibility Study This involves questions such as whether thesystem has enough support to be implementedsuccessfully, whether it brings an excessiveamount of change, and whether the organisationis changing too rapidly to absorb it.
  19. 19.  A study being use as the key initial tool forassisting hotel, restaurant, leisure and retaildevelopment planning.
  20. 20.  There are two main types of feasibility study –and many people confuse the two. Architects will undertake a development feasibilitystudy to determine what is possible on a site. The results should not be confused with a marketfeasibility study that determines the financialviability of a scheme based on the market(s) for whichit will cater.*The results of such a study should then be used toinform the architect’s work to ensure that projectbudgets are reasonable.
  21. 21.  Market feasibility studies are required to:• raise funding,• satisfy grant awarding bodies, where appropriate, bothfinancially and in terms of project outputs,• satisfy the directors that a project is viable,• determine the optimum facility mix to maximiserevenue,• ensure that all parties agree on the key elements of aproject,• form the basis for initial market and project planning,• in some cases, provide the argument for business closureor change of use applications/ planning appeals,• enable third parties to value operating contracts (forexample, enable museums and other visitor attractions tovale catering contracts).
  22. 22.  Hotel, restaurant, leisure and retail marketfeasibility studies should be completed for anycapital project. It is essential that they weigh up all of themarket information available dispassionatelyand relate the findings in potential revenueestimates.These estimates should show thenumber of units (rooms, meals, membershipsetc.) estimated to be sold and the expectedtariffs to be achieved, resulting in estimates ofrevenue and project outputs.
  23. 23.  The information used to form the base for the above assumptionsshould include the:• location and visibility of the proposed facilities in respect of the keysources of demand,• existing and known future competitors, including possiblesubstitutes,• current and forecast levels of demand and market trends – takinginto account known levels of current demand, latent demand,frustrated demand.This data may include information in the publicdomain, competitor research, market surveys and demographicanalysis.• impact of non-direct but influencing changes in the competitiveenvironment. Seasonality factors should also be taken into account showing whendemand is likely to be highest and lowest – viability can be greatlydifferent if a business opens at the end or start of a trading season.
  24. 24.  Estimates of the project outputs will enablethe study to identify the optimum facility mixand also determine the costs of theoperation: costs of sales staffing costs marketing expenditure Maintenance Insurance etc.
  25. 25.  The end results therefore should bestatements of revenue and expenditure forthe first five years of the project, clearlyshowing the links between the markets andthe forecasts. From these statements will then follow balance sheet cash flow forecasts, and estimates of project value upon completion.
  26. 26.  The information you gather and present in yourfeasibility study will help you: List in detail all the things you need to make thebusiness work; Identify logistical and other business-relatedproblems and solutions; Develop marketing strategies to convince a bank orinvestor that your business is worth considering as aninvestment; and Serve as a solid foundation for developing yourbusiness plan.
  27. 27.  Even if you have a great business idea you stillhave to find a cost-effective way to market andsell your products and services. For example, most commercial space leasesplace restrictions on businesses that can have adramatic impact on income. A lease may limitbusiness hours/days, parking spaces, restrict theproduct or service you can offer, and in somecases, even limit the number of customers abusiness can receive each day.
  28. 28.  Description of the Business:The product or services to be offered andhow they will be delivered. Market Feasibility: Includes a description of the industry, currentmarket, anticipated future market potential, competition, salesprojections, potential buyers, etc. 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.). Financial Feasibility: Projects how much start-up capital is needed,sources of capital, returns on investment, etc. Organizational Feasibility: Defines the legal and corporate structure ofthe business (may also include professional background informationabout the founders and what skills they can contribute to the business). Conclusions: Discusses how the business can succeed. Be honest in yourassessment because investors won’t just look at your conclusions theywill also look at the data and will question your conclusions if they areunrealistic.
  29. 29.  A feasibility study is usually conducted afterproducers have discussed a series of businessideas or scenarios. The feasibility study helps to “frame” and“flesh-out” specific business scenarios so theycan be studied in-depth. During this process the number of businessalternatives under consideration is usuallyquickly reduced.
  30. 30.  During the feasibility process you mayinvestigate a variety of ways of organizing thebusiness and positioning your product in themarketplace. It is like an exploratory journey and you may takeseveral paths before you reach your destination. Just because the initial analysis is negative doesnot mean that the proposal does not havemerit. Sometimes limitations or flaws in the proposalcan be corrected.
  31. 31.  A pre-feasibility study may be conducted first to help sortout relevant scenarios. Before proceeding with a full-blown feasibility study, youmay want to do some pre-feasibility analysis of your own. If you find out early-on that the proposed business idea isnot feasible, it will save you time and money. If the findings lead you to proceed with the feasibilitystudy, your work may have resolved some basic issues. A consultant may help you with the pre-feasibility study,but you should be involved. This is an opportunity for youto understand the issues of business development.
  32. 32.  a market assessment may be conducted that will helpdetermine the viability of a proposed product in themarketplace. The market assessment will help to identify opportunitiesin a market or market segment. If no opportunities are found, there may be no reason toproceed with a feasibility study. If opportunities are found, the market assessment cangive focus and direction to the construction of businessscenarios to investigate in the feasibility study. A market assessment will provide much of the informationfor the marketing feasibility section of the feasibilitystudy.
  33. 33.  The conclusions of the feasibility study should outline in depth thevarious scenarios examined and the implications, strengths andweaknesses of each.The project leaders need to study the feasibilitystudy and challenge its underlying assumptions.This is the time to beskeptical. Don’t expect one alternative to “jump off the page” as being the bestscenario. Feasibility studies do not suddenly become positive ornegative.As you accumulate information and investigate alternatives,neither a positive nor negative outcome may emerge. The decision ofwhether to proceed is often not clear cut. Major stumbling blocks mayemerge that negate the project. Sometimes these weaknesses can beovercome. Rarely does the analysis come out overwhelmingly positive.The study will help you assess the tradeoff between the risks andrewards of moving forward with the business project. Remember, it is not the purpose of the feasibility study or the role of theconsultant to decide whether or not to proceed with a business idea. It isthe role of the project leaders to make this decision, using informationfrom the feasibility study and input from consultants.
  34. 34.  The go/no-go decision is one of the most criticalin business development. It is the point of no return. Once you have definitely decided to pursue abusiness scenario, there is usually no turningback. The feasibility study will be a major informationsource in making this decision. This indicates the importance of a properlydeveloped feasibility study.
  35. 35.  A feasibility study is not a business plan. The separate roles of the feasibility study andthe business plan are frequentlymisunderstood. The feasibility study provides an investigatingfunction. It addresses the question of “Is this a viablebusiness venture?”
  36. 36.  The business plan provides a planning function. The business plan outlines the actions needed totake the proposal from “idea” to “reality.” The feasibility study outlines and analyzesseveral alternatives or methods of achievingbusiness success. The feasibility study helps to narrow the scopeof the project to identify the best businessscenario(s).
  37. 37.  The business plan deals with only onealternative or scenario. The feasibility study helps to narrow the scopeof the project to identify and define two or threescenarios or alternatives. The person or business conducting the feasibilitystudy may work with the group to identify the“best” alternative for their situation.Thisbecomes the basis for the business plan. The feasibility study is conducted before thebusiness plan.
  38. 38.  A business plan is prepared only after the businessventure has been deemed to be feasible. If a proposed business venture is considered to befeasible, a business plan is usually constructed nextthat provides a “roadmap” of how the business will becreated and developed. The business plan provides the “blueprint” for projectimplementation. If the venture is deemed not to be feasible, effortsmay be made to correct its deficiencies, otheralternatives may be explored, or the idea is dropped.
  39. 39.  Project leaders may find themselves underpressure to skip the “feasibility analysis” stepand go directly to building a business. Individualsfrom within and outside of the project may pushto skip this step. Reasons given for not doing afeasibility analysis include: We know it’s feasible. An existing business isalready doing it. Why do another feasibility study when one wasdone just a few years ago?
  40. 40.  Feasibility studies are just a way forconsultants to make money. The market analysis has already been doneby the business that is going to sell us theequipment. Why not just hire a general manager who cando the study?
  41. 41.  Feasibility studies are a waste of time. Weneed to buy the building, tie up the site andbid on the equipment. The reasons given above should not dissuadeyou from conducting a meaningful andaccurate feasibility study. Once decisionshave been made about proceeding with aproposed business, they are often verydifficult to change.You may need to live withthese decisions for a long time.
  42. 42.  Conducting a feasibility study is a good businesspractice. If you examine successful businesses,you will find that they did not go into a newbusiness venture without first thoroughlyexamining all of the issues and assessing theprobability of business success. Below are other reasons to conduct a feasibilitystudy: Gives focus to the project and outline alternatives. Narrows business alternatives
  43. 43.  Identifies new opportunities through theinvestigative process. Identifies reasons not to proceed. Enhances the probability of success byaddressing and mitigating factors early on thatcould affect the project. Provides quality information for decisionmaking. Provides documentation that the businessventure was thoroughly investigated.
  44. 44.  Helps in securing funding from lendinginstitutions and other monetary sources. Helps to attract equity investment. NOTETHATThe feasibility study is a criticalstep in the business assessment process. Ifproperly conducted, it may be the bestinvestment you ever made.
  45. 45.  If you are considering conducting a feasibilityanalysis to investigate the viability of apotential business venture, answering thefollowing six questions will help guide youthrough the process. By using these as aguide, it will help you move through theprocess efficiently while helping you get themost out of the analysis.
  46. 46.  The decision to conduct a feasibility studyshould not be taken lightly. It is an expensiveand time consuming process. However, notdoing a feasibility analysis can be even moreexpensive in terms of the poor decisions youmay make from not conducting the properanalysis.
  47. 47.  You need to be far enough along in thedeliberation process of your business idea tomake the best use of a feasibility study. So youneed to have a clearly defined outline of one ormore alternative business models or scenariosthat you want to explore.And you want to haveconducted sufficient initial investigation of thesealternatives to determine if they have thepotential of being viable.You don’t want tospend your feasibility money investigating ideasthat you can determine are not feasible by justmaking a few phone calls.
  48. 48.  This means that you will need to have already donemuch of the early investigation and exploration ofyour business idea before you schedule a full blownstudy.This early investigation or pre-feasibilityanalysis can be done by members of your committeeor with the help of a consultant.You may start bydoing a marketing study to determine if the businessidea has market viability. If it does not, you have savedtime and money by not commissioning acomprehensive feasibility study. If the idea has marketviability, you can move forward with the feasibilityanalysis and use the market analysis in the feasibilitystudy.
  49. 49.  At the end of the study, provide thecommittee with a draft of a final report.Before you start discussing the conclusions ofthe study and what impact they have on theviability of your project, you must first reviewthe study to determine if it is accurate,relevant and complete. It is not uncommonfor the project committee to reject the draftof the report and ask for further clarificationand analysis.
  50. 50.  The study is only as strong as its weakest part. It takes a mistake in onlyone part of the study to sink the business venture. So, before you acceptthe study you should determine that it: Is understandable and easy to read Addresses all of the relevant issues and questions Lists and discusses all of the underlying assumptions of the project analysis Meets the expectations of the project committee Is logically consistent within sections and among sections Is thoroughly researched using good research techniques Contains all of the relevant information Meets the conditions of the consulting contract It is important that you meet this “due diligence” requirement becauseinvestors and others may question your procedures and decisions during thisperiod if the business venture eventually fails.You may want to discuss thiswith your attorney to make sure the proper safeguards are in place.
  51. 51.  The purpose of the feasibility study is toprovide you with the information needed todetermine if the proposed business venture isviable. However, it will probably not provideyou with a magic answer. So you will need tocarefully assess the conclusions of the studyand decide if the proposed business venturehas sufficient merit to move forward.
  52. 52.  If ever there is a time for unemotional,rational and logical thinking, it is now.Mistakes at this time may be with you for along time.
  53. 53.  1.The committee members have alreadymade up their minds and rationalize thestudy results to fit their decision.
  54. 54.  2. Because project committee members tendto be action oriented rather thandeliberators, they become restless to moveforward with the project and gloss overimportant aspects of the study.
  55. 55.  3. Because of the importance of the decisionand the lack of clear direction from thefeasibility analysis, committee members findthey cannot bring themselves to make adecision. Rather, they continually seek moreinformation.
  56. 56.  4.The committee members become confusedby the array of information presented to themand pressure their consultants and others to givedefinitive answers of whether to move forwardwith the project.When committee membersrespond to questions pertaining to why theymoved forward with a project by replying, “ourconsultants said it would work,” are abdicatingtheir decision making responsibility.
  57. 57.  "He who asks is a fool for five minutes, buthe who does not ask is a fool forever."(traditionalChinese proverb)
  58. 58.  People deny that the innovation is required. People deny that the innovation is effective. People deny that the innovation is important. People deny that the innovation will justifythe effort required to adopt it. People accept and adopt the innovation, enjoyits benefits, attribute it to people other thanthe innovator, and deny the existence ofstages 1 to 4.▪ ©AC 2005. Inspired by Alexander von Humboldts ThreeStages Of Scientific Discovery, as referenced by Bill Bryson inhis book, A Short History Of Nearly Everything.