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Chapter 1 - Overview of Project Feasibility Study.pptx
- 1. Unit I: Overview of Project Feasibility Study Edgelly G. Vitug, Ph.D. Subject Instructor
- 2. Topics Covered: • What is a Feasibility Study? • Contents of a Feasibility Study • Feasibility Study vs. Business Plan • Reasons to Do or Not to Do a Feasibility Study • Idea Assessment and Business Development Process • Typical Steps to a Feasibility Study
- 4. “an analysis into the viability of an idea”
- 5. ➜ does the company possess the required resources or technologies; and ➜ does the proposal offer a reasonable return vs. risk from the investment. Feasibility studies help determine:
- 6. FEASIBLE viable,, probable, likely, possible
- 8. ➜ An Executive Summary ➜ Description of Product or Service ➜ Technology Considerations ➜ Product or Service Marketplace ➜ Identification of Specific Market ➜ Marketing Strategy ➜ Organization Structure ➜ Schedule ➜ Financial Projections The most-common feasibility study should include the following sections:
- 9. 3. Typical Steps to a Feasibility Study
- 10. 1. Preliminary Analysis Typical Steps to a Feasibility Study 2. Market Assessment 3. Organizational Structure 4. Financial Controls 5. Points of Vulnerability 6. Results and Conclusions 7. Go/No Go Decision
- 12. Feasibility study vs. Business Plan ➜ A feasibility study is not a business plan. ➜ The feasibility study provides an investigating function. It addresses the question of “Is this a viable business venture?” ➜ The business plan provides a planning function. The business plan outlines the actions needed to take the proposal from “idea” to “reality.”
Editor's Notes
- Feasibility studies help answer the essential question, “should we proceed with the proposed idea?” The objective study may be completed in conjunction with a SWOT planning process, which looks at the strengths, weaknesses, opportunities, and threats that may be present externally (the environment) or internally (resources).
- Feasibility studies can be used in many ways but primarily focus on proposed business ventures. Farmers and others with a business idea should conduct a feasibility study to determine the viability of their idea before proceeding and incurring upfront development costs. Determining early that a business idea will not work saves time, money and heartache later. A feasible operating change or business restructure is one where the business will generate adequate cash-flow and profits to withstand (a) the short-term risks it will encounter, and (b) remain viable in the long-term to meet the goals of the owner/founders. The venture might be an investment start-up or the purchase/expansion of an existing business, beyond its present business footprint or enterprise. A feasibility study is only one step in the business idea assessment and business development process. Reviewing this process and reading the information below will help put the role of the feasibility study in perspective.
- The term “feasible” describes an action or event that has uncertainty risks, e.g. probable, likely, possible, etc. A feasibility study is the total of the actions - specific, focused. A feasibility study is an investigative tool and is not the same as a business plan, though a well-done business plan (the call to action) should include many answers from the feasibility study. The feasibility study is an in-depth process to determine factors that will lead to a project’s success or failure and addresses: • Technical feasibility • Legal • Operational feasibility • Realistic project timeline • Economic feasibility
- Companies should be careful to NOT blindly follow feasibility templates. A well-designed feasibility study is one that is focused upon and centered on the business organization.
- 1. Preliminary Analysis To efficiently evaluate alternatives, a pre-feasibility study is often conducted after discussing a series of business ideas or scenarios. This pre-feasibility study helps to “frame” and “flesh-out” specific business scenarios, with only some studied more in-depth. It is not unusual that during this preliminary analysis, the number of business alternatives under consideration is reduced from the initial starting point. During this first step to the feasibility process you may investigate a variety of ways to organize the business and/or to position the product in the marketplace. It is like an exploratory journey and you may take several paths before you reach your destination. Just because the initial analysis is negative does not mean that the proposal does not have merit. Sometimes limitations or flaws in the proposal can be corrected. If the findings lead you to proceed with the feasibility study, 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 you to understand the issues of business development. 2. Market Assessment A market assessment may be conducted that will help determine the viability of a proposed product or service in the marketplace. The market assessment will also help to identify demand in the market, and at what price. If no opportunities are found, there may be no reason to proceed further with the feasibility study. If opportunities are found, the market assessment can give focus and direction in the construction of business scenarios to investigate in the feasibility study. A market assessment will provide much of the information for the marketing feasibility section of the feasibility study. 3. Organizational Structures This step in the feasibility analysis pertains to organization. Staffing requirements, including management and labor alignment are studied. How many workers are needed for how long? What other resources will be needed? 4. Financial Controls It is important to formalize an opening day balance sheet. In this step, first efforts at projected revenues and expenses are attempted. 5. Points of Vulnerability Factors that are internal to the project and represent vulnerability to the project’s short- term or long-term steps should be reviewed and analyzed. These points then can be controlled or otherwise eliminated. 6. Results and Conclusions The conclusions of the feasibility study should outline in-depth the various scenarios examined. The project leaders need to carefully examine the feasibility study and challenge its underlying assumptions. This is the time to be skeptical. Don’t expect one alternative to “jump off the page” as being the best scenario. 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 is often 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. The study will help you assess the trade- off between the risks and rewards of moving forward with the business project. 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 plan. It is the role of the project leaders to make this decision, using information from the feasibility study and input from consultants. 7. Go/No-Go Decision The go/no-go decision is one of the most critical in business development. It is the point of no return. Once you have definitely decided to pursue a business scenario, there is usually no turning back. The feasibility study will be a major information source in making this decision. This indicates the importance of a properly developed feasibility study.
- Step 1 – Initial Idea Exploration, Identification and Assessment The origination of a new business idea can come from a variety of sources. It may come from the board room of an existing business or a group of producers sitting around the kitchen table. Regardless of the setting, you may want to use the following approach to formulate the business concept. Anytime during Steps 1 and 2 you may decide that your idea is not viable, in which case you may want to abandon the idea. • Form a project committee – Creating a good project committee involves bringing together individuals who have the business development skills needed to investigate the idea/concept and carry through with business formation if the concept is viable. • Formulate general business idea(s) or concept(s) – Define your business idea or concept and describe why it has merit. Your idea may involve filling an unmet need in the marketplace with a new product, providing an existing product in a new form, producing a product better or cheaper than competitors, or other ways in which value can be added. Remember, an idea is only viable if people are willing to pay you for what it provides. For example, a premium product is only viable if someone is willing to pay more for it. • Identify alternative business models or scenarios for the idea(s) – A business model describes how the business will function in producing the product or service and providing it to the customer. A business scenario is a logical assemblage of the essential business elements starting with raw materials procurement and ending with the sale of the final product, and all the stages in between. • Investigate idea/concept and alternative business scenarios – Conduct an initial informal investigation of the validity of your idea. Investigate the scenarios or models. Early in the process this may be nothing more than a series of telephone calls to knowledgeable individuals. Does your idea make sense? Identify business scenarios/models for further study and eliminate those that are not viable. • Formal investigation – You may want to conduct a formal assessment such as a pre-feasibility study or a marketing study of the idea and various scenarios or models. This may involve using consultants to investigate various aspects of the project. It may involve eliminating additional scenarios/models or identifying new ones. • Refine scenarios – Select those scenarios that are viable for further study and eliminate the rest. As you go through Step 1 you should accomplish two things: 1. Through the process of elimination you will reduce the number of scenarios/models under consideration for further study. 2. Refine and flesh-out the remaining scenarios/ models. Step 2 – Idea/Concept and Scenario/ Model Deliberation and Assessment • Further refine the business scenarios/models – If you have conducted any of the formal assessments described above, you have information that can be used to further refine your business scenario/models. So by now you should have refined your idea to one or a small number of specific and detailed business scenario/models that you want to assess. This is critical before you move to the next step. • Conduct feasibility study – A feasibility study will provide a comprehensive and detailed assessment of the market, operational, technical, managerial and financial aspects of your business project. These factors will feed into the economic assessment of your project (is it profitable?). If you have already conducted a pre-feasibility study, marketing study or other study; these materials can be used in the feasibility study. Feasibility studies are usually prepared by consultants, so you will need to investigate consultants who are familiar with your type of business and experienced in preparing feasibility studies. • Analyze the feasibility study – When you receive the feasibility report, the first step is not to begin deliberations on whether to proceed with the project. Rather, you need to determine the completeness and accuracy of the study. Does it address the issues you want addressed? Was there a thorough investigation of the critical issues? Challenge the assumptions and conclusions of the study. Only after you have accepted the study as being complete and comprehensive can you move to Step 3. • Further refine the idea and scenario/model However, before you proceed you may see the need for further study of various aspects of the business project. It is not uncommon for the feasibility study to uncover new issues that need to be investigated. This may create the need for additional negotiations with your consultants to expand on the original scope of the feasibility study. Step 3 – Go/No-Go Decision This is the most critical step in the entire business development process. In a sense, it is the point of no return. Once you start down the path of creating a business, it is difficult to turn back. If you have unresolved doubts or reservations about the project, you should not proceed. That is why it is important to have an open, honest and thorough discussion when making this decision. You may find that there is division in your committee. Some members may want to move forward while others may want to end it. This is not uncommon. If the issues cannot be resolved, each side needs to go its own way with no bad feelings. At this point, the remaining members need to determine if they want to proceed with business creation. Commitment to the project is another important factor to consider before you proceed. Most beginners to business development greatly underestimate the time and effort required to start a business. A financial commitment by project members at this time (everyone throws some money in the pot) is an important sign of commitment to creating the business. This step involves making one of the three possible decisions listed below: • Decide that the project is viable and move forward with it. • Decide to do more study and or analyze additional alternatives. • Decide that the project is not viable and abandon it. Step 4 – Business Plan Preparation and Implementation If you decide to proceed with creating a business, you will need to prepare a business plan. A business plan is an outline or blueprint of how you will create your business. If you conducted a feasibility study, it will provide some of the information needed for your business plan. Also, business planning often involves the use of consultants. However, don’t turn the process completely over to a consultant, you need to stay integrally involved in the planning process. Remember, it is your business. Although planning can involve considerable time and effort, it is the easiest part. Implementing the plan is much more difficult. Many prospective businesses experience problems or failure due to the improper implementation of their business plan. This step requires commitment and dedication. Unforeseen problems will emerge. Your persistence is critical. Implementing your business plan will include, but is not limited to: • Creating a legal structure • Securing market access • Raising equity and securing financing • Hiring management and staff • Constructing facility • Other Step 5 – Business Operations Now that you have successfully started your value-added business, your work has just begun. Producer groups often forget that once the business is created, it takes constant attention for it to remain healthy and viable. Operating a business is very different than starting a business. It requires a different set of skills. So the people who create the business may not be the best people to manage the business. Conclusion These are the five steps you will want to follow for taking an idea and making a viable business from it. These steps will not guarantee success. However, they will increase your odds of success. Also, you will make more efficient use of your time.