UNIT 2: GENERATING DATA FOR FEASIBILITY STUDIES

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Information Need for Feasibility Studies
3.2 Market Information
3.3 Operations Information Needs
3.4 Financial Information Needs
4.0 Conclusion
5.0 Summary
6.0 Tutor Marked Assignment
7.0 References and Further Reading

1.0 INTRODUCTION
In the preceding study unit we discussed the realm of feasibility study. The discussion in
that unit has an aspect which portrays the sources through which valuable pieces of
information can be generated for the feasibility study. However, you will appreciate the
fact that information cannot be useful unless and until they are generated for specific
aspects of the feasibility study. Hence this is the subject of discussion in this study unit.

2.0 OBJECTIVES
At the end of this study unit you should be able to:
 Discuss the information need for a feasibility study
 Explain the information required for marketing
 Mention and discuss various information needs for operations
 Identify and explain three areas of financial information
3.1 INFORMATION NEED FOR A FEASIBILITY STUDY
The preparation of the feasibility preludes the preparation of the business plan.
This is because before committing time and energy to preparing a business plan,
the entrepreneur should do a quick feasibility prospect of the business concept to
see if there are any possible barriers to success. The information, obtainable from
many sources, should focus on marketing, finance, and production. The internet
can be a valuable resource for the entrepreneur.

In the preparation of the feasibility study, the entrepreneur should clearly define
the goals and objectives of the venture. These goals help define what needs to be
done and how it will be accomplished. These goals and objective also provide a
framework for the business plan, marketing plan, and financial plan. Goals and
objective that are too general or that are not feasible make the business plan
difficult to control and implement.

Basically the lack of feasible business goals and understanding of how these goals
would be achieved can spell a fault start for the entrepreneur. The entrepreneur
may need someone who is experienced in business feasibility to assess a business
and offer valuable information and advice for the ultimate direction.

Hence the important consideration is that the business plan cannot be taken lightly
and that it must reflect reasonable goals. The business plan is needed for the
formulation of viable business strategies. These goals, in essence, needed to be
translated into specific, successful marketing strategies. The entrepreneur will use
his invested capital to focus on his target market and control growth and costs.
From this plan, possible losses in the growth stages will be minimized.

Self Assessment Exercise 1:

What are the areas of need for generating information for feasibility study?

3.2 Market Information

One of the initial important elements of information needed by the entrepreneur is
the market potential for the product or service. In order to ascertain the size of the
potential market, the following basic questions are necessary:

 Is the product most likely to be purchased by men or women?

 Are the consumers people of high income or low income?
 Are they rural or urban dwellers?
 Are they highly educated or less educated people?

A well-defined target market will make it easier for the entrepreneur to ensure
viable product market size and subsequent market goals for new venture. To assess
the total market potential, the entrepreneur should consider trade association,
government report, and publish studies. In some instance, this information is
readily available in newspapers, periodicals, magazines, and other publications as
well as electronic media.

The entrepreneur should be able to estimate the size of the market from secondary
data. The entrepreneur can also contact existing businesses. In the process of
contracting a few of such outfits to discuss relevant issues could provide valuable
insights for the business plan. From this, the entrepreneur would be able to
determine an approximate size of the market.

3.3 Operation Information Needs

The relevance of a feasibility study of the manufacturing operations depends on
the nature of the business. Most of the information needed can be obtained through
direct contract with the appropriate source. The entrepreneur may need
information on the following:

 Location:- The Company’s location and its accessibility to customers,

suppliers, and distributors need to be determined.
 Manufacturing:- Operations basic machine and assembly operation need
to be identified, as well as whether any of these operations would be
subcontracted and by whom.
 Raw materials:- The raw materials needed and supplier’s names,
addresses, and costs should be determined.
 Equipment:- The equipment needed should, be listed and whether it will
be purchased or leased.
 Labor skills:- Each unique skill needed, the number of personnel in each
skill, pay rate, and an assessment of where and how these skills will be
obtained should be determined.
 Space:- The total amount of space needed should be determined, including
whether the space will be owned or leased.
 Overhead:- Each item needed to support manufacturing, such as tools,
supplies, utilities, salaries, and so on, should be determined.

Most of the above information as analysed should be incorporated directly into the
business plan. Each item may require some research but each is necessary to those
who will assess the business plan and considers funding the proposal.

Self Assessment Exercise 2:

What are the areas of need for generating information on operations?

3.4 Financial Information Needs

Before preparing the business plan, the entrepreneur must have a complete
evaluation of the profitability of the venture. The assessment will primarily tell
potential investors if the business will be profitable, how much money will be
needed to launch the business and meet short –term financial needs, and how this
money will be obtained; for example, stock and debt.

There are traditionally three areas of financial information that will be needed to
ascertain the feasibility of the new venture:

 expected sales and expense figures for at least the first three years;
 cash flow figures for the first three years; and
 current balance sheet figures and pro forma balance sheets for the first
three years.

Determination of the expected sales and expense figures for each of the first
twelve months and each subsequent year is based on the marker information
discusses earlier. Each expense item should be identified and give on a monthly
basis for the year. Estimates of cash flow consider the ability of the new venture to
meet expenses at designated times of the year. The cash flow forecast should
identify the beginning cash, expected account receivable and other receipts, and all
disbursements on monthly basis for the entire year.

Current balance sheet figures provide the financial conditions of the business at
any particular time. They identify the assets of the business, the liabilities (what is
owed), and the investment made by the owner or other partners.

Self Assessment Exercise 3:

What are the areas of need for generating information towards ensuring
profitability of a new venture?

4.0 CONCLUSION
Generating data for a feasibility study, as you have understood from discussion
above, is not just enough unless and until such pieces of information are generated
for specific areas which are very relevant for the study. In assessing the viability of
a new business venture some forms of information are necessary, and these relate
to market information, operations information, and financial information among
others.

The discussion above has been used to portray the areas of need for generating
information for feasibility study generally, the specific areas of needs for
marketing, operations, finance and other sundry information to be generated
towards ensuring profitable business.

5.0 SUMMARY
In this study unit, we have discussed the following topics as they relate to
feasibility study
Information Need for Feasibility Studies
Market Information
Operations Information Needs
Financial Information Needs

In the next study unit, we shall discuss the issue of business description.

6.0 TUTOR MARKED ASSIGNMENT

Mention and discuss the reasons for generating relevant information for specific
aspects of feasibility study.

Solution to Self Assessment Exercises

SAE 1. The areas of need for generating information for feasibility study are as
follows:
i. Prospects of the business
ii. Possible barriers to success
iii. Goals and objectives of the venture
iv. Framework for business/operation plan
v. Marketing plan
vi. Financial plan
vii. Management of the venture
viii. Business strategies
ix. Control and minimization of costs
x. Effective implementation of plans.

SAE 2. The areas of need for generating information on operations are as follows:
 Location:- The Company’s location and its accessibility to customers,
suppliers, and distributors need to be determined.
 Manufacturing:- Operations basic machine and assembly operation need to
be identified, as well as whether any of these operations would be
subcontracted and by whom.
 Raw materials:- The raw materials needed and supplier’s names,
addresses, and costs should be determined.
 Equipment:- The equipment needed should, be listed and whether it will
be purchased or leased.
 Labor skills:- Each unique skill needed, the number of personnel in each
skill, pay rate, and an assessment of where and how these skills will be
obtained should be determined.
 Space:- The total amount of space needed should be determined, including
whether the space will be owned or leased.
 Overhead:- Each item needed to support manufacturing, such as tools,
supplies, utilities, salaries, and so on, should be determined.

SAE 3. The areas of need for generating information towards ensuring

profitability of a new venture area as follows:
i. Expected sales and expense figures for five years;

ii. Cash flow figures for five years;

iii. Pro forma balance sheets for five years.

iv. Expected sales and expense figures for each of the first twelve months
v. Expected sales and expense figures for five years

7.0 REFERENCES/ FURTHER READINGS

Ezeanyagu J.E., (1995), Project Packaging for Business Funding – Methods and
Case Studies, Enugu: Precision Printers and Publishers.

Hisrich, R. D. and Peters, M. P. (1998), Entrepreneurship, 4th Ed., Boston: Irwin

McGraw-Hill, A Division of The McGraw-Hall Companies.
Imaga, E.U.L. (2003), Groundwork of Project Management and Feasibility
Studies, Owerri: Ibeson Press.

Odufalu O. (2000), The Principle and techniques of project Analysis and

Evaluation, Lagos: Y2K Academy Ltd.
Sahlman, W. A. (1997), “How to Write a Great Business Plan”, Harvard Business
Review, July – August.

7.0 REFERENCES/FURTHER READINGS

Aruwa, S. A. S. (2006), The Business Entrepreneur: Entrepreneurial Development,

Small and Medium Enterprises, 2nd Edition, Kaduna: Entrepreneurship
Academy Publishing.