5. Overview
• Feasibility studies can be used in many ways but
primarily focus on proposed business ventures.
Engineers, even farmers and others with a business
idea should conduct a feasibility study to determine
the viability of their idea before proceeding with the
development of a business. Determining early that a
business idea will not work saves time, money, effort
and heartache later on.
• A project feasibility study allows exploring and
analyzing business opportunities and making a
strategic decision on the necessity to initiate the
project. It is the right way to answer the question: “Is
the concept of my project economically reasonable and
technically feasible?”
6. 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.
• The market 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.
7. Reasons to do a feasibility
study
• Gives focus to the project and outline alternatives.
• Narrows business alternatives
• Identifies 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.
• Provides documentation that the business venture was thoroughly
investigated.
• Helps in securing funding from lending institutions and other monetary
sources.
• Helps to attract equity investment.
8. 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?”
9. PRE-FEASIBILITY STUDY
• A pre-feasibility study may be
conducted first to help sort
out relevant scenarios. Before
proceeding with a full-blown
feasibility study, you may want
to do some pre-feasibility
analysis of your own
10. MARKET
ANALYSIS
• A market analysis is a quantitative
and qualitative assessment of
a market. It looks into the size of
the market both in volume and in
value, the various customer
segments and buying patterns, the
competition, and the economic
environment in terms of barriers
to entry and regulation.
12. Market Size
• The size of the market is a key factor in a
marketing analysis. The bigger the market
the more competitors you are likely to have.
For a big market, you need to make sure
your products and services stand out.
Otherwise, the customers can easily switch
to a rival product. Not only that, a bigger
market makes you rethink your pricing
policy.
13. Growth Rate of the
Market
• The market growth rate is a huge factor in any sort
of marketing analysis. This is because you get the
idea of how long the said market will last.
14. Market Trends
• Market trends are a significant part of
the marketing analysis. Having
knowledge about the trends help you to
decide what kind of product you are
going to sell. When you are starting off a
business you need to know what the
current trend is. What is the thing that
the customers like? How much they are
willing to spend?
15. Market Profitability
• Most companies’ motive to get into the
business is to make a profit. In other words,
they are profit-motive businesses. So before
getting into a business you need to analyze
the profitability of the market.
16. Distribution Channels
• Distribution channels are very important for a
business. Without those, you won’t be able to get
your products to your customers. So it becomes a
big factor in a marketing analysis. This is because
you need to assess how well the channels are.
17. Industry Cost
Structure
The industry cost structure is a significant
factor while running a business. It basically
sees how much cost is required to get your
products for sale. Sometimes firms can come
up with ways to decrease that cost and thereby
make a bigger profit without increasing the
market price
18. TECHNICAL ANALYSIS
• Technical analysis is a trading tool employed to
evaluate securities and attempt to forecast
their future movement by analyzing statistics
gathered from trading activity, such as price
movement and volume. Unlike fundamental
analysts who attempt to evaluate a security's
intrinsic value, technical analysts focus on
charts of price movement and various
analytical tools to evaluate a security's strength
or weakness and forecast future price changes.
19. How Technical Analysis
Is Used
• Technical analysis is used to attempt to forecast
the price movement of virtually any tradable
instrument that is generally subject to forces of
supply and demand, including stocks, bonds,
futures and currency pairs.
• In fact, technical analysis can be viewed as
simply the study of supply and demand forces as
reflected in the market price movements of a
security. It is most commonly applied to price
changes, but some analysts may additionally
track numbers other than just price, such as
trading volume or open interest figures.
20. Key Assumptions of
Technical People
• Technical analysis is
applicable to securities where
the price is only influenced by
the forces of supply and
demand.
• Technical analysis does not
work well when other forces
can influence the price of the
security.
• In order to be successful,
technical analysis makes
three key assumptions about
the securities that are being
analyzed:
21. High Liquidity
• Liquidity is essentially volume. Heavily-
traded stocks allow investors to trade
quickly and easily, without dramatically
changing the price of the stock.
• Thinly-traded stocks are more difficult to
trade, because there aren't many buyers
or sellers at any given time, so buyers and
sellers may have to change their desired
price considerably in order to make a
trade
22. No Artificial Price
Changes
• Splits, dividends, and distributions are the
most common “culprits” for artificial price
changes.
• Though there is no difference in the value
of the investment, artificial price changes
can dramatically affect the price chart and
make technical analysis difficult to apply.
23. No Extreme News
• Technical analysis cannot predict extreme
events, including business events such as
a company's CEO dying unexpectedly, and
political events such as a terrorist act.
• When the forces of “extreme news” are
influencing the price, technicians have to
wait patiently until the chart settles down
and starts to reflect the “new normal”
that results from such news.
25. Focus on Price
• If the objective is to predict the
future price, then it makes sense to
focus on price movements. Price
movements usually precede
fundamental developments. By
focusing on price action,
technicians are automatically
focusing on the future
26. Supply, Demand and Price
Action
• Many technicians use the
open, high, low and close
when analyzing the price
action of a security. There is
information to be gleaned
from each bit of information.
Separately, these will not be
able to tell much. However,
taken together, the open, high,
low and close reflect forces of
supply and demand.
27. Support Resistance
• These are usually marked by
periods of congestion (trading
range) where the prices move
within a confined range for an
extended period, telling us
that the forces of supply and
demand are deadlocked.
28. Pictorial Price History
• The price chart is an easy-to-
read historical account of a
security's price movement
over a period of time
29. Assist with Entry Point
Technical analysis can help with
timing a proper entry point. Some
analysts use fundamental analysis to
decide what to buy and technical
analysis to decide when to buy. It is
no secret that timing can play an
important role in performance.
Technical analysis can help spot
demand (support) and supply
(resistance) levels as well as
breakouts. Simply waiting for a
breakout above resistance or buying
near support levels can improve
returns.
31. Analyst Bias
Just as with fundamental analysis, technical analysis is
subjective and our personal biases can be reflected in the
analysis.
32. Open to
Interpretation
• Furthering the bias argument is the fact that technical
analysis is open to interpretation. Even though there are
standards, many times two technicians will look at the
same chart and paint two different scenarios or see
different patterns.
33. Too Late
Technical analysis has been criticized for being too late. By
the time the trend is identified, a substantial portion of the
move has already taken place. After such a large move, the
reward to risk ratio is not great. Lateness is a particular
criticism of Dow Theory.
34. Always Another
Level
Even after a new trend has been identified, there is always
another “important” level close at hand. Technicians have
been accused of sitting on the fence and never taking an
unqualified stance. Even if they are bullish, there is always
some indicator or some level that will qualify their opinion.
35. Trader’s
Remorse
• Not all technical signals and patterns work. When you
begin to study technical analysis, you will come across
an array of patterns and indicators with rules to match
36. ORGANIZATIONAL
DESIGN
• Organizational design is a step-by-step
methodology which identifies dysfunctional
aspects of work flow, procedures, structures and
systems, realigns them to fit current business
realities/goals and then develops plans to
implement the new changes.
37. The hallmark of the design process is a
comprehensive and holistic approach to
organizational improvement that touches all
aspects of organizational life, so you can
achieve:
• Excellent customer service
• Increased profitability
• Reduced operating costs
• Improved efficiency and cycle
time
• A culture of committed and
engaged employees
• A clear strategy for managing
and growing your business
38. Organizations that don’t periodically renew themselves suffer from such
symptoms as:
Inefficient workflow with breakdowns and non-value-added steps
Redundancies in effort (“we don’t have time to do things right, but do have time to do them over”)
Fragmented work with little regard for good of the whole (Production ships bad parts to meet their quotas)
Lack of knowledge and focus on the customer
Silo mentality and turf battles
Lack of ownership (“It’s not my job”)
Cover up and blame rather than identifying and solving problems
Delays in decision-making
People don’t have information or authority to solve problems when and where they occur
Management, rather than the front line, is responsible for solving problems when things go wrong
It takes a long time to get something done
Systems are ill-defined or reinforce wrong behaviors
Mistrust between workers and management
40. Charter The Design
Process
• As senior leaders, you come together to
discuss current business results,
organizational health, environmental
demands, etc. and the need to embark on
such a process.
• You establish a charter for the design
process that includes a “case for change,”
desired outcomes, scope, allocation of
resources, time deadlines, participation,
communications strategy, and other
parameters that will guide the project.
41. Assess the Current State
of the Business
• You don’t want to begin making
changes until you have a good
understanding of the current
organization.
• Using a Transformation Model, we
facilitate a comprehensive assessment
of your organization to understand
how it functions, its strengths and
weaknesses, and alignment to your
core ideology and business strategy
42. Design the New Organization: At a high
level, the steps in this process include
the following:
• Defining your basic organizing principle.
• Streamlining core business processes
• Documenting and standardizing procedures.
• Organizing people around core processes.
• Defining tasks, functions, and skills.
• Determining facility, layout and equipment
• Identifying support resources
• Defining the management structure
• Improving coordinating and development systems
43. Implement The Design
• Now the task is to make the design
live.
• People are organized into natural work
groups which receive training in the
new design, team skills and start-up
team building.
45. Environmental Analysis - The environmental impacts of the proposed works will
require a plan of environmental mitigation, as well as monitoring in order to
identify future possible negative impacts. For the feasibility study stage this task
involves the identification of the following
Evaluation of the direct
environmental impacts
caused in the construction
stage, as well as those
during the operation of the
corridors.
Development of mitigation
measures for impacts on
pedestrians, drivers,
passengers and neighboring
properties in the area of
influence.
Recommendations
concerning the engineering
projects from the
environmental point of view.
Estimate of costs of these
measures and designation of
the responsible body for
their execution.
46. Environmental Analysis: Specific
environmental proposals for:
Potential factors of risk –
erosion, riverbanks and
flood plain reduction.
1
Green areas and parks –
as well as major changes
to vegetation, required
for the execution of the
work.
2
Touristic, archaeological
and historic sites of
particular interest along
the corridors.
3
Land use and occupation
within the area of
influence, specifically
near places like
hospitals, schools,
markets etc.
4
48. Social Impact Analysis
Identification of the type and
characteristics of the organizations that
would be displaced by the introduction of
the new services in the corridors, defining:
(i) displaced workers (drivers and other); (ii)
small proprietor-operators (person-
vehicle); (iii) informal workers (without
formal labor relationship or legal
protection); and (iv) large operators.
Evaluation of the effect on properties
(expropriation needs, damages, etc) and
preparation of a program designed to
mitigate these problems on the affected
population groups.
Estimate of the impact on productive
activities and services.
Resettlement of squatters, low-income
housing or subsidized dwellings.
49. Screening and Scoping
In order to spend limited cot, it is
essential to accurately scope out
projects including scope of work,
budget and schedule. Whether it’s
formal feasibility studies or
informal option review, the
following are the preliminary
phases of doing the projects:
1. Needs requirement
• The first step of any good scoping or
feasibility study is determining the wants and
needs of the stakeholders. What the project
is intended to accomplish? What are the
needs of the operators, maintenance
personnel, staff, management,
environmental, legislative and other
stakeholders?
2. Determine alternatives
• Often, the client already has a very good idea
of how to proceed. Take those alternatives,
explore them, refine them, and come up
with additional alternatives based on our
experience. Together with the client, we
choose the best alternative(s) for further
development.
50. Screening and
Scoping
Cont…
3.. Develop Scope , estimate and schedule
• Develop scope, drawings, estimate and schedule to the required degrees of completion
and accuracy. This typically includes civil/structural, mechanical, electrical and controls.
It also includes technical and financial risk assessment. The estimate may include capital
and operating costs, as well as payback/ROI assessment.
4. Review Meeting and Presentation
• In many cases, present the alternatives and recommendations to the client’s
stakeholders, giving them the information they need to choose the best alternative.
5. Final Report
• Provide a professional report, outlining all findings, including needs assessment,
drawings, estimates, financial assessment, risk assessment, and more.
6. Subsequent Phases
• Provide all required engineering services for further studies, detail design, procurement,
construction and commissioning.
52. Political Analysis
Political feasibility analysis is used to predict the probable
outcome of a proposed solution to a policy problem
through examining the actors, events and environment
involved in all stages of the policy-making process. It is one
frequently used component of a policy analysis and can
serve as an evaluative criterion in choosing between policy
alternatives. Feasible policies must be politically
acceptable or at least not unacceptable. Political
unacceptability is a combination of two conditions too
much opposition or too little support. One common
mistake is widespread in practice that feasibility becomes
a dominant criterion of preferable alternative.
53. Political Analysis
When policy analysis generates policy
alternatives, the political risks and costs
associated with each can be important criteria for
deciding between alternatives. A good policy
alternative requires a certain amount of political
feasibility, or implementation of the policy will be
impossible. It is important to keep in mind;
however, that feasibility alone does not make a
policy "good." Examining all criteria is necessary
for the implementation of socially responsible
policy.
Steps in a political Feasibility Analysis:
Identify the policy’s environment Assemble information and organize Analyze the data
55. Risk Management
Risk management is the process of identifying, assessing and controlling threats to an
organization's capital and earnings.
These threats, or risks, could stem from a wide variety of sources, including financial
uncertainty, legal liabilities, strategic management errors, accidents and natural
disasters.
As a result, a risk management plan increasingly includes companies' processes for
identifying and controlling threats to its digital assets, including proprietary corporate
data, a customer's personally identifiable information and intellectual property.
56. Risk Management
The overall risk management process is as follow:
• The process should create value for the organization.
• It should be an integral part of the overall organizational process.
• It should factor into the company's overall decision-making process.
• It must explicitly address any uncertainty.
• It should be systematic and structured.
• It should be based on the best available information.
• It should be tailored to the project.
• It must take into account human factors, including potential errors.
• It should be transparent and all-inclusive.
• It should be adaptable to change.
• It should be continuously monitored and improved upon.
57. Risk Management
All risk management plans follow the same steps that combine to make up the overall risk management process:
•Risk identification. The company identifies and defines potential risks that may negatively influence a
specific company process or project.
•Risk analysis. Once specific types of risk are identified, the company then determines the odds of it
occurring, as well as its consequences. The goal of the analysis is to further understand each specific
instance of risk, and how it could influence the company's projects and objectives.
•Risk assessment and evaluation. The risk is then further evaluated after determining the risk's overall
likelihood of occurrence combined with its overall consequence. The company can then make decisions on
whether the risk is acceptable and whether the company is willing to take it on based on its risk appetite.
•Risk mitigation. During this step, companies assess their highest-ranked risks and develop a plan to alleviate
them using specific risk controls. These plans include risk mitigation processes, risk prevention tactics and
contingency plans in the event the risk comes to fruition.
•Risk monitoring. Part of the mitigation plan includes following up on both the risks and the overall plan to
continuously monitor and track new and existing risks. The overall risk management process should also be
reviewed and updated accordingly.
58. Financial Analysis
Financial analysis is the key assumptions in
a narrative highlighting key underlying
assumptions and the logic governing your
projections. Include financial history if any
(e.g. equity and debt), and likely financing
stages including information about funding
sources.
Included in the financial assumptions are:
• Partnership Structure Partner`s Share Capital
Structure Division of Profits
• Manufacturing Requirements Direct Materials
Costs Direct Labor Costs Manufacturing Overhead
• Assets and Liabilities PPE Loans
• Sales and Production Sales Production ( ending
inventory of finished goods, ending inventory and
work in process inventory)
59. Financial Analysis
FINANCIAL STATEMENTS
• Financial statements or financial reports are formal records of business financial
activities. These statements provide an overview of a business profitability and
financial condition in both short and long term.
• The objective of financial statements is to provide information about the financial
strength, performance and changes in financial position of an enterprise that is
useful to a wide range of users in making economic decisions.
• Financial statements should be understandable, relevant, reliable and comparable.
Reported assets, liabilities and equity are directly related to an organization's
financial position. Reported income and expenses are directly related to an
organization's financial performance.
60. Financial Analysis
Financial statements are intended to be
understandable by readers who have "a
reasonable knowledge of business and economic
activities and accounting and who are willing to
study the information diligently.
There are three basic financial statements:
• 1. Balance sheet - is a summary of the value of all
assets, liabilities and owners' equity for an
organization or individual on a specific date, such
as the end of its financial year.
• 2. Income statement: also referred to as Profit or
loss statement, reports on a company's results of
operations over a period of time.
• 3. Statement of cash flows: reports on a
company's cash flow activities, particularly its
operating, investing and financing activities.
61. Financial Analysis
A balance sheet is often described as a
"snapshot" of a company's financial
condition on a given date. From the three
basic financial statements, the balance
sheet is the only statement which applies to
a single point in time, instead of a period of
time.
A company balance sheet has three parts:
assets, liabilities and shareholders' equity.
The main categories of assets are usually
listed first and are followed by the liabilities.
The difference between the assets and the
liabilities is known as the net assets or the
net worth of the company. According to the
accounting equation, net worth must equal
assets minus liabilities. Records of the
values of each account or line in the balance
sheet are usually maintained using a system
of accounting known as the double-entry
bookkeeping system.
62. Financial Analysis
Equity
• The net assets shown by the balance sheet equals the third part of the balance
sheet, which is known as the shareholders' equity. Formally, shareholders' equity is
part of the company's liabilities: they are funds "owing" to shareholders (after
payment of all other liabilities); usually, however, "liabilities" is used in the more
restrictive sense of liabilities excluding shareholders' equity.
• The balance of assets and liabilities (including shareholders' equity) is not a
coincidence. Records of the values of each account in the balance sheet are
maintained using a system of accounting known as double-entry bookkeeping. In
this sense, shareholders' equity by construction must equal assets minus liabilities,
and are a residual.
63. Financial Analysis
Income Statement
• An Income Statement, also called a Profit and Loss Statement (P&L), is a
financial statement for companies that indicates how Revenue (money
received from the sale of products and services before expenses are taken
out, also known as the "top line") is transformed into net income (the
result after all revenues and expenses have been accounted for, also known
as the "bottom line").
• The purpose of the income statement is to show managers and investors
whether the company made or lost money during the period being
reported.
64. Economic
Analysis
• The purpose of an economic feasibility
study (EFS) is to demonstrate the net
benefit of a proposed project for
accepting or disbursing electronic
funds/benefits, taking into
consideration the benefits and costs to
the agency, other state agencies, and
the general public as a whole. ... Cost
Benefit Analysis.
65. Economic Analysis
Economic
feasibility
elements
include,
but are
not
limited to:
Increased agency revenue,
Decreased agency revenue,
Increased agency costs,
Decreased agency costs,
Increased revenue to other agencies and/or the general public,
Decreased revenue to other agencies and/or the general public,
Increased costs to other agencies and/or the general public,
Decreased costs to other agencies and/or the general public, and,
Other public benefits.
66. Sensitivity
Analysis
Financial Sensitivity Analysis is often a part of
financial and feasibility studies and includes
testing the project cash flow sensitivity to
alternative plans, attendance projections
(forecasts) and operating strategies. Other
variables might be project size and operating
parameters, pricing, or market response.
Editor's Notes
The reasons given above should not dissuade you from conducting a meaningful and accurate feasibility study. Once decisions have been made about proceeding with a proposed business, they are often very difficult to change. You may need to live with these decisions for a long time.
Conducting a feasibility study is a good business practice. If you examine successful businesses, you will find that they did not go into a new business venture without first thoroughly examining all of the issues and assessing the probability of business success.
Below are other reasons to conduct 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.”
All activities of the study are directed toward helping answer this question. 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 with the development of a business. Determining early that a business idea will not work saves time, money and heartache later. A feasible business venture is one where the business will 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. The venture can be either a start-up business, the purchase of an existing business, an expansion of current business operations or a new enterprise for an existing business.
A pre-feasibility study may be conducted first to help sort out relevant scenarios. Before proceeding with a full-blown feasibility study, you may want to do some pre-feasibility analysis of your own. If you find out early-on that the proposed business idea is not feasible, it will save you time and money. 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.
Set your price too high then you are going to lose your customer base to other competitors. Set it too low and people will think that you are just providing cheaper poor quality goods. If the market size is small then you can get away with charging a high price. All these facts are kept in the marketing analysis. Based on that you go ahead with your marketing plan.
Before you make an investment you need to analyze the market’s growth rate. If it is likely to grow over time then you can invest more in it. If it has no growth then you are likely to be discouraged from investing anything at all. How much time and importance you give to the market depends on its growth rate.
What other trends may capture their attention? These are the sort of things which will go on your analysis. On the other hand, market trends can change any day. This can turn out to be an opportunity for your business. If that’s the case then you can seize it and make the most of it. Changes in trend can also be a threat for you. If you are comfortable producing one kind of good then a market trend change will affect you the most.
If the market has a good profitability then only you are going to invest heavily. Otherwise, it would be a waste of your time and capital. In order to calculate the profitability of the market, there are a few things one has to consider. These things include; buyer power, supplier power, barriers to entry and so on.
This is because you need to assess how well the channels are. If the existing ones are good enough or you need to develop newer ones. Sometimes you come up with brand new channels like online marketing.
Doing a marketing analysis will help you to come up with newer ways to reduce cost. At the same time, it helps to create strategies for developing a competitive advantage of your rivals.
Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Instead, technical analysis can help investors anticipate what is “likely” to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time.
Technical analysis is applicable to stocks, indices, commodities, futures or any tradable instrument where the price is influenced by the forces of supply and demand. Price data (or as John Murphy calls it, “market action”) refers to any combination of the open, high, low, close, volume, or open interest for a given security over a specific timeframe. The timeframe can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years
Over the years, numerous technical indicators have been developed by analysts in attempts to accurately forecast future price movements. Some indicators are focused primarily on identifying the current market trend, including support and resistance areas, while others are focused on determining the strength of a trend and the likelihood of its continuation. Commonly used technical indicators include trend lines, moving averages and momentum indicators such as the moving average convergence divergence (MACD) indicator. Technical analysts apply technical indicators to charts of various timeframes. Short-term traders may use charts ranging from one-minute timeframes to hourly or four-hour timeframes, while traders analyzing longer-term price movement scrutinize daily, weekly or monthly charts.
Key Assumptions of Technical Analysis
Technical analysis is applicable to securities where the price is only influenced by the forces of supply and demand. Technical analysis does not work well when other forces can influence the price of the security. In order to be successful, technical analysis makes three key assumptions about the securities that are being analyzed:
In addition, low liquidity stocks are often very low priced (sometimes less than a penny per share), which means that their prices can be more easily manipulated by individual investors. These outside forces acting on thinly-traded stocks make them unsuitable for technical analysis.
No Artificial Price Changes - Splits, dividends, and distributions are the most common “culprits” for artificial price changes. Though there is no difference in the value of the investment, artificial price changes can dramatically affect the price chart and make technical analysis difficult to apply. This kind of price influence from outside sources can be easily addressed by adjusting the historical data prior to the price change.
No Extreme News - Technical analysis cannot predict extreme events, including business events such as a company's CEO dying unexpectedly, and political events such as a terrorist act. When the forces of “extreme news” are influencing the price, technicians have to wait patiently until the chart settles down and starts to reflect the “new normal” that results from such news.
It is important to determine whether or not a security meets these three requirements before applying technical analysis. That's not to say that analysis of any stock whose price is influenced by one of these outside forces is useless, but it will affect the accuracy of that analysis.
Focus on Price
If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental developments. By focusing on price action, technicians are automatically focusing on the future. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. To keep pace with the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden knee-jerk reactions, hints usually develop before significant moves. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.
Supply, Demand, and Price Action
Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be gleaned from each bit of information. Separately, these will not be able to tell much. However, taken together, the open, high, low and close reflect forces of supply and demand.
The annotated example above shows a stock that opened with a gap up. Before the open, the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strength of demand (buyers). The intraday low reflects the availability of supply (sellers). The close represents the final price agreed upon by the buyers and the sellers. In this case, the close is well below the high and much closer to the low. This tells us that even though demand (buyers) was strong during the day, supply (sellers) ultimately prevailed and forced the price back down. Even after this selling pressure, the close remained above the open. By looking at price action over an extended period of time, we can see the battle between supply and demand unfold. In its most basic form, higher prices reflect increased demand and lower prices reflect increased supply.
Support/Resistance
Simple chart analysis can help identify support and resistance levels. These are usually marked by periods of congestion (trading range) where the prices move within a confined range for an extended period, telling us that the forces of supply and demand are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning.
Pictorial Price History
Even if you are a tried and true fundamental analyst, a price chart can offer plenty of valuable information. The price chart is an easy-to-read historical account of a security's price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:
Reactions prior to and after important events.
Past and present volatility.
Historical volume or trading levels.
Relative strength of a stock versus the overall market.
Assist with Entry Point
Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timing can play an important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns.
It is also important to know a stock's price history. If a stock you thought was great for the last 2 years has traded flat for those two years, it would appear that Wall Street has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal.
Analyst Bias
Just as with fundamental analysis, technical analysis is subjective and our personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt.
Open to Interpretation
Furthering the bias argument is the fact that technical analysis is open to interpretation. Even though there are standards, many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both will be able to come up with logical support and resistance levels as well as key breaks to justify their position. While this can be frustrating, it should be pointed out that technical analysis is more like an art than a science, somewhat like economics. Is the cup half-empty or half-full? It is in the eye of the beholder.
Too Late
Technical analysis has been criticized for being too late. By the time the trend is identified, a substantial portion of the move has already taken place. After such a large move, the reward to risk ratio is not great. Lateness is a particular criticism of Dow Theory.
Dow Theory is an (stock price) analysis that explores the relationship between the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA). When one of these averages climbs to an intermediate high, then the other is expected to follow suit within a reasonable amount of time.
Always Another Level
Even after a new trend has been identified, there is always another “important” level close at hand. Technicians have been accused of sitting on the fence and never taking an unqualified stance. Even if they are bullish, there is always some indicator or some level that will qualify their opinion.
Trader's Remorse
Not all technical signals and patterns work. When you begin to study technical analysis, you will come across an array of patterns and indicators with rules to match. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify support and resistance for IBM, but a 70-day moving average may work better for Yahoo. Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.
The process focuses on improving both the technical and people side of the business.
For most companies, the design process leads to a more effective organization design, significantly improved results (profitability, customer service, internal operations), and employees who are empowered and committed to the business.
As companies grow and the challenges in the external environment become more complex, businesses processes, structures and systems that once worked become barriers to efficiency, customer service, employee morale and financial profitability.
Although adaptable to the size, complexity and needs of any organization, the design process consists of the following steps.
Charter the design process
As senior leaders, you come together to discuss current business results, organizational health, environmental demands, etc. and the need to embark on such a process. You establish a charter for the design process that includes a “case for change,” desired outcomes, scope, allocation of resources, time deadlines, participation, communications strategy, and other parameters that will guide the project.
(At times, senior teams may go through either a strategic planning process or an executive team development process prior to beginning a redesign initiative, depending on how clear they are about their strategy and how well they work together as a team.)
Assess the current state of the business
The assessment process is astounding in the clarity it brings an organization’s leaders and members, not only regarding how the organization currently works but how the various parts are interrelated, its overall state of health and, most importantly, what needs to be done to make improvements.
Design the new organization
The senior team (and/or others who have been invited to participate in the process), look to the future and develop a complete set of design recommendations for the “ideal future.”
At a high level, the steps in this process include the following:
Defining your basic organizing principle. (Will you organize primarily around functions, processes, customer-types, technologies, geographies, etc.?)
Streamlining core business processes—those that result in revenue and/or deliverables to customers.
Documenting and standardizing procedures.
Organizing people around core processes. Identifying headcount necessary to do core work.
Defining tasks, functions, and skills. What are the performance metrics for each function/team? How are they evaluated and held accountable?
Determining facility, layout and equipment needs of various teams and departments throughout the organization.
Identifying support resources (finance, sales, HR, etc.), mission, staffing, etc. and where should these should be located.
Defining the management structure that provides strategic, coordinating and operational support.
Improving coordinating and development systems (hiring, training, compensation, information-sharing, goal-setting, etc.).
At some point the design process morphs into transition planning as critical implementation dates are set and specific, concrete action plans created to implement the new design. And a key part of this step includes communicating progress to other members of the organization. A communications plan is developed that educates people in what is happening. Education brings awareness, and everyone’s inclusion brings the beginning of commitment.
Implement the design
Now the task is to make the design live. People are organized into natural work groups which receive training in the new design, team skills and start-up team building.
New work roles are learned and new relationships within and without the unit are established.
Equipment and facilities are rearranged.
Reward systems, performance systems, information sharing, decision-making and management systems are changed and adjusted.
Some of this can be accomplished quickly.
Some may require more detail and be implemented over a longer period of time.
