Introduction to feasibility_studies_97

feasibility study...prepared by:mohammad
marwan al ashi(section1-2)
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Feasibility Study
first term 08/09
prepared by :
Mohammad Marwan
Al ashi

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Section 1: 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
6. Pre-Feasibility Study

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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.

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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.
• 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.

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Important 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.

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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.

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Importance….
• For example, most commercial space leases
place restrictions on businesses that can have
a dramatic impact on income. A lease may
limit business hours/days, parking spaces,
restrict the product or service you can offer,
and in some cases, even limit the number of
customers a business can receive each day.

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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.

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The Components of a Feasibility
Study
• Market Feasibility:
• Technical Feasibility:
• Financial Feasibility:
• Organizational Feasibility:
• Conclusions:

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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.

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Market feasibility …
• The primary area that the feasibility study
needs to address is potential market
opportunities for the cooperative. 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.

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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?
• Will the decision maker be competing in a
mature industry or a growth industry?

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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 ?
• 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
?

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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.
• The answers to market-related questions should help the decision
maker develop realistic estimates of the projected demand for the
decision maker ’s product for the first several years of operation.
Based on this projected demand, the decision maker can
determine its anticipated level of business volume, which is needed
in order to design the processing facilities. If the projected business
volume is not large enough to justify a processing facility, then the
project is not feasible.

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• 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.).

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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?
• 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?

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questions of technical feasibility…
• 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?
• 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?

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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.

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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 .

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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?

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• 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).

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• 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.

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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.

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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. The study will help you assess
the tradeoff between the risks and rewards of moving
forward with the business project.

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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.

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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.

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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.

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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.
• 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.

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Continue : Reasons Given Not to Do a
Feasibility Study…
• 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.

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Reasons to Do a Feasibility Study
• 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.

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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
• 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

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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.

Introduction to feasibility_studies_97

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