Project Feasibility Study: 5.2.1 Market Analysis

PROJECT FEASIBILITY STUDY
Feasibility literally means whether some idea will work or not. It knows beforehand whether there
exists a sizeable market for the proposed product/service, what would be the investment requirements
and where to get the funding from, whether and wherefrom the necessary technical know-how to
convert the idea into a tangible product may be available, and so on. In other words, feasibility study
involves an examination of the operations, financial, HR and marketing aspects of a business on ex
ante (Before the venture comes into existence) basis. Thus, you may simultaneously read this lesson
and the lessons on marketing, finance etc. to have a better idea of the issues involved. What we
present hereunder is a brief outline of the issues impinging upon the various aspects of the feasibility
of the proposed project.
By now, you would have understood that feasibility is a multivariate concept; that is, a project has to
be viable not only in technical terms but also in economic and commercial terms too. Moreover,
there always is a possibility that a project that is technically possible may not be economically viable.
For instance, you can construct a dust free factory in Rajasthan, but it is more economically sensible
to do so in Chandigarh/ Bangalore. So even as we take up the various aspects of feasibility one by-
one, it must not mislead into believing that there is a sequence and that there are no
interdependencies.
Examination of the feasibility requires skills that you may fall short of. You may take the help of the
Technical Consultancy Organisations (TCOs) such as HARDICON (Haryana-Delhi Industrial
Consultancy Organisation) towards this purpose. There are district-wise industrial potential surveys
available with the SISIs and DICs that may serve as a good starting point. You may also make use of
the Project Reports published by the directorate of industries and private consulting firms. Obviously,
as you use these off-the- shelf project reports, you need to re-validate their assumptions and findings
and resist the temptation of jump-starting. Whether you use the already published project reports or
wish to start afresh, you need to examine all the facets of the feasibility of the proposed project idea,
viz., marketing, and technical, financial, economic and legal.
5.2.1 MARKET ANALYSIS

A market, whether a place or not, is the arena for interaction among buyers and sellers.
From seller’s point of view, market analysis is primarily concerned with the aggregate demand of the
proposed product/service in future and the market share expected to be captured. Success of the
proposed project clearly hinges on the continuing support of the customers. However, it is very
difficult to identify the market for one’s product/service. After all, the whole universe cannot be your
market. You have to carefully segment the market according to some criteria such as geographic
scope, demographic and psychological profile of the potential customers etc. It is a study of knowing
who all comprise your customers, for this you require information on:
- Consumption trends.
- Past and present supply position
- Production possibilities and constraints
- Imports and Exports
Competition
- Cost structure
- Elasticity of demand
- Consumer behaviour, intentions, motivations, attitudes, preferences and requirements
- Distribution channels and marketing policies in use
- Administrative, technical and legal constraints impinging on the marketing of the product
5.2.2 FINANCIAL ANALYSIS
The objective of financial analysis is to ascertain whether the proposed project will be financially
viable in the sense of being able to meet the burden of servicing debt and whether the proposed
project will satisfy the return expectations of those who provide the capital. While conducting a
financial appraisal certain aspects has to be looked into like:
- Investment outlay and cost of project
- Means of financing
- Projected profitability
- Break- even point
- Cash flows of the project
- Investment worthiness judged in terms of various criteria of merit
- Projected financial position
5.2.3 TECHNICAL ANALYSIS

The issues involved in the assessment of technical analysis of the proposed project may be classified
into those pertaining to inputs, throughputs and outputs.
Input Analysis: Input analysis is mainly concerned with the identification, quantification and
evaluation of project inputs, that is, machinery and materials. You have to ensure that the right kind
and quality of inputs would be available at the right time and cost throughout the life of the project.
You have to enter into long-term contracts with the potential suppliers; in many cases you have to
cultivate your supply sources. When Macdonald entered India, they developed sustainable sources of
supply of potatoes, lettuce and other ingredients for their burgers. The activities involved in
developing and retaining supply sources are referred to as supply chain management.
Throughput Analysis: It refers to the production/operations that you would perform on the inputs to
add value. Usually, the inputs received would undergo a process of transformation in several stages
of manufacture. Where to locate the facility, what would be the sequence, what would be the layout,
what would be the quality control measures, etc. are the issues that you would learn in greater details
in subsequent lessons.
Output Analysis: this involves product specification in terms of physical features- colour, weight,
length, breadth, height; functional features; chemicalmaterial properties; as well as standards to be
complied with such as BIS, ISI, and ISO etc.
5.2.4 ECONOMIC ANALYSIS

Economics is the study of costs- and- benefits. In regard to the feasibility of the study the
entrepreneur is concerned whether the capital cost as well as the cost of the product is justifiable vis-
à-vis the price at which it will sell at the market place. For example, technically, silver can be
extracted from silver bromide, (a chemical used for processing the X-ray and photo films); but, the
cost of extraction is so high that it would not be economically feasible to do so. Likewise, until
recently cost of harnessing solar power was prohibitively high. This cost-benefit analysis goes into
financial calculations for profitability analysis that we discussed under financial analysis. At this
stage it is also useful to distinguish between the economic and commercial feasibility; whereas
economic feasibility leads one to the unit cost of the product, commercial feasibility informs whether
enough units would sell.
Apart from the cost-benefit analysis as above, which we also refer to as private cost benefit analysis,
it is also useful to do what is known as social- cost-benefit- analysis (SCBA). For example, the
entrepreneur may be getting subsidized electricity in which case private cost would be less than
social cost. Likewise, exporting units earn precious foreign exchange resulting into social benefits
being more than private earnings. Many a time, a project that is worthy on SCBA may find greater
favour with the support agencies.
5.2.5 ECOLOGICAL ANALYSIS

In recent years, environmental concerns have assumed a great deal of significance especially for
projects, which have significant ecological implications like power plants and irrigation schemes, and
for environment polluting industries (like bulk drugs, chemicals and leather processing). The
concerns that are usually addressed include the following:
- What is the likely damage caused by the project to the environment?

- What is the cost of restoration measures required to ensure that the damage to the environment is
contained within acceptable limits?
5.2.6 LEGAL AND ADMINISTRATIVE

Think of the plight of the entrepreneur who worked on the idea of a laundry to cater to hotels and
hospitals, finds it eminently feasible only to learn subsequently that ‘laundry’ does not figure as an
industry within the administrative definition of SSI as applicable on that date. Another entrepreneur
in Kalyani (West Bengal) developed an Ayurvedic preparation only to find that the office of DIC did
not have an expert to validate the project; the product had to be marketed as a confectionary item!
What is implied from these examples is that the entrepreneur has to be sure also of the administrative
and legal issues involved in the project. These include, choice of the form of business organisation,
registration and clearances and approvals from the diverse authorities.
Forms of Organisation Sole Proprietor: At the time of startup the entrepreneur usually has to handle
all functional responsibilities of the venture and handles production, marketing, personnel, finance
himself. As a result the vast majority of new businesses start as sole proprietors. This form has the
added merit of being free from formalities regarding incorporation or maintenance of accounts or
auditing etc.
Partnership: As the business grows the requirements for funds and management will also increase
which might lead him to enter into partnership with one or more persons.
It is always preferable to have a written agreement in the form of a partnership deed which clearly
indicates the names and addresses of the partners, their ages, contribution to capital, profit sharing
ratio etc. This form also makes for pooling of skills and responsibilities and spread of risk.
Company: A company can be a private limited company, in which case it can have a minimum of 2
and a maximum of 50 members. It can be a public limited company, which has to have a minimum of
7 members, and there is no maximum limit. This form of organisation provides vast amounts of
capital as they, unlike the private limited company, invite the general public to subscribe to its shares
and also provide limited liability. The Companies Act of 1956 governs the companies.
Co-operative: A co-operative is an enterprise owned and controlled by people working in it.
Generally they are formed for some specific purpose like a housing cooperative society.
Clearances and Approvals: Setting up of an industrial unit requires the entrepreneur to obtain a
number of clearances and approvals regarding land use, pollution control and safety. In this regard,
you would be required to interact with the local government authorities such as the municipalities/
village panchayats and state pollution control boards. In case, you wish to avail the incentives
accruing to the firms registered under
Export Processing Zone/Special Economic Zone (SEZ), Software Technology Park
(STP), or 100% Export Oriented Unit you would be required to register as such.
Besides, certain products may require specific clearances from the relevant departments/authorities.
Box entitled ‘Product-Specific Clearances’ illustrates a few examples of the necessary clearances and
approvals vis-à-vis specific products.

Project Feasibility Study: 5.2.1 Market Analysis

Uploaded by

Copyright:

Available Formats

Project Feasibility Study: 5.2.1 Market Analysis

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Project Feasibility Study: 5.2.1 Market Analysis

Uploaded by

Copyright:

Available Formats

PROJECT FEASIBILITY STUDY

5.2.1 MARKET ANALYSIS

5.2.3 TECHNICAL ANALYSIS

5.2.4 ECONOMIC ANALYSIS

5.2.5 ECOLOGICAL ANALYSIS

- What is the likely damage caused by the project to the environment?

5.2.6 LEGAL AND ADMINISTRATIVE

You might also like