Entrepreneurship

Environmental Analysis an
Feasibility Study
 Environmental Analysis
❖ Environmental analysis is a strategic tool. It is a process to identify all the
external and internal elements, which can affect the organization's performance
❖ Environmental scanning is the process of gathering information about events
and their relationships within an organization's internal and external
environments. The basic purpose of environmental scanning is to help
management determine the future direction of the organization
❖ When starting a new venture it is important for an entrepreneur to conduct a
proper study of the prevailing environmental factors so that he can make
appropriate preparation that become crucial for the survival.

 Business Environment
❖ Components or Elements
• INTERNAL ENVIRONMENT:
• Employees, Management, Rules & Regulations, Values structure, Power
relation, Organisational Structure and Physical Resources

• EXTERNAL ENVIRONMENT:
• Micro Environment - Suppliers, Customers, Competitors, Market
intermediaries.

• Macro Environment - Economic, Socio-cultural, Legal, Political, Technological.

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 Internal Environment
❖ Internal environment is composed of various elements present inside the organisation, that
in uences the choices, activities and decisions of the organisation
• Employees: Human resource is the most valuable asset of the organisation. The employee must be skilled,
competent, knowledgeable with high motivation and commitment
• Management: The nature of people at the top. Their style of leadership and working
• Rules and Regulation: The rules and regulation that guides the working. Are there proper rules and regulation?, are
they being understood and followed
• Value Structure: How strongly are values, moral and ethical code of conduct? Are they followed and adhered to.
Are these values and believes part of the organisational culture or not
• Power Relations: How th the relation between the key people in the organisation. Is there organisational politics
that is affecting th over-all organisational performance
• Organizational Structure: The structure of the organization determines the way in which activities are directed in
the organization so as to reach the ultimate goal.
• Physical Resources: Physical resources refers to the tangible assets of the organization that play an important role
in ascertaining the competitive capability of the company
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 External Environment
❖ Micro Environmen
• Micro environment is the immediate environment of rm. Organisation has every less control over these factors
• It is external and speci c for every organisation thus every organisation have its own set of micro environment
• It consists of
• Suppliers: Suppliers are either individuals or business houses who provide resources that are needed by the
company. Quality and reliability with respect to vendors is important for smooth conduct of business operations
• Customers: The business enterprises aims to earn pro t through serving the customer demand. In order to do it it
must understand the needs and requirement, preferences, and purchase habits of its customers
• Competitors: People or organisations that are providing same, similar or alternative product. What are their product
and services, what are their strategies. Firms also ght for the discretionary income of customers
• Market Intermediaries: People or organisation responsible for ensuring that the product reaches the end users or the
customers. Channel of distribution
• Public: Literally word ‘public’ refers to people in general. Public is any group that has an actual or potential to have
an impact on a company’s ability to achieve its objectives. The environmentalists, consumer protection groups, media
persons and local people are some of the well-known examples of publics
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 Externl Environment
❖ Macro Factor
• These are the broad set of factors external to organisation and a ecting its functioning.
• These a ects organisations di erently depending upon the industry to which it belong, size and type
of business it is into.
• These factors are uncontrollable and the company is powerless and incapable of exercising any
control over them.
• The external environment consists of:
• Economic environment
• Political environment
• Legal environment
• Socio-Cultural environment
• Technological environment
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 Macro Environment
❖ Economic Environmen
• Economic syste
• Overall condition of econom
• Employment scenari
• Money supply in the econom
• Interest rate
• Resources and their availabilit
• Infrastructur
• Income of people
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 Macro Environment
❖ Political Environmen
• Political environment constitutes all the factors related to government a airs such as:
• Type of government in power, its orientation and philosophy
• Attitude of government towards di erent groups of societies,
• Policy changes implemented by di erent governments etc.
• The political environment has immediate and great impact on the business and can be very critical
for their survival.

• The businessman has to make changes in his organisation according to the changing factor of
political environment. For example, in 1977 when Janata Government came in power they made
the policy of sending back all the foreign companies. As a result the Coca Cola Company had to
close its business and leave the country.
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 Macro Environment
❖ Legal Environmen
• Legal environment constitutes the laws and various legislations passed in the parliament.
• The businessman cannot overlook the legislations, as business transactions are performed within the framework of
legal environment.
• The legal environments create a system of rules and regulations that must be followed by business organisations.
They may sometimes put constraints on the businesses or sometimes they provide opportunities also.
• Some Aspects of Legal Environment:
• Various laws and legislative Acts.
• Legal policies related to licensing.
• Legal policies related to foreign trade.
• Statutory warnings essential to be printed on label.
• Foreign Exchange Management Act.
• Laws to keep a check on Advertisements.
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 Macro Environment
❖ Socio-Cultural Environmen
• Social-Cultural Environment consists of the customs, traditions and culture of the society in
which business is existing.

• The businessman cannot overlook the components of social environment as these

components are very important and directly a ects the choice of products and services
demanded by the customers.

• The social environment is made up of the attitudes, desires, expectations, degrees of

intelligence and education, beliefs, customs and culture of people in a given group or society.
The choice of product depends upon these factors.

• The product and services o ered by business must be in conformance to the social and
cultural construct of the society in which it is operating.
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 Macro Environment
❖ Technological Environmen
• Technological environment refers to changes taking place in the method of production, use of
new equipment and machineries to improve, the quality of product etc.
• The businessman must closely monitor the technological changes taking place in the industry
because he will have to implement these changes to remain in the competitive market
• Technological changes always bring quality improvement and more bene ts for customers.
• It increase both production and productivity, and can therefore can help in raising the wages
of the employees and declining the prices of some products
• It makes organisation more competitive
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 SWOT Analysis

• Strength – An inherent capacity of an organisation which helps it gain a

strategic advantage over its competitors
• Weakness – an inherent constraint or limitation which creates a strategic
disadvantage for a business
• Opportunity – a favourable condition in the organisation’s environment
enabling it to strengthen its position
• Threat – an unfavourable condition in the organisation’s environment causing
damage to the organisation.
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 ETOP Analysis
❖ ETOP analysis (environmental threat and opportunity pro le) is the process by which
organisations monitor their relevant external environment to identify opportunities
and threats affecting their business for the purpose of taking strategic decisions
❖ Only concerned with external environmen
❖ Conducting ETOP analysi
❖ Dividing the environment into different sectors such as economical, market, social, international,
legal, technological, political, ecological, etc
❖ Analysing the impact of each sector on the organisation
❖ Sub-dividing each environmental sector into sub factors
❖ Impact of each sub-sector on organisation in form of a statement
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 Feasibility Study
❖ Feasibility Study is done to nd whether the proposed project or business is
feasible (i.e. workable, viable, realistic, achievable, sensible, realistic) or not.
❖ Feasibility study is carried out to assess the feasibility of the project itself in a
particular environment in greater details and is different from environmental
analysis which analyse the environment in which the business exists.
❖ A feasibility study evaluates the project’s potential for success; therefore, is
study that help in generating con dence in potential investors and lending
institutions.
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 Dimensions of Feasibility Study

❖ Market Analysi
❖ Market analysis is to be conducted for the following reasons :
❖ To estimate the demand of the proposed product / service in future
❖ To estimate the market share of the proposed product/ service in future.
❖ The demand analysis & market share is based on number of factors like consumption pattern, availability of
substitute goods/ services, type of competition etc.
❖ A preliminary discussion with consumers, retailers, distributors, competitors, suppliers etc is carried out to
understand the preferences, existing, latent & potential demands, strategy of competitors & practices of distributors,
retailers etc.
❖ It tries nding answers to questions such as
❖ Who are the consumers (customers) both present & prospective?
❖ What is the present & future demand
❖ How is demand distributed geographically
❖ How much price the consumer is willing to pay
❖ What is the marketing mix of competitors
❖ What marketing mix would the consumers accept?
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 Dimensions of Feasibility Study

❖ Technical or Operational Feasibilit
❖ It done to assess the operational ability of the proposed business enterprise
❖ Key Questions to be answered are:
❖ What are the technological needs for the proposed business?
❖ What other equipment does the proposed business need ?
❖ From where will this technology & equipment be obtained?
❖ From where can the technology & raw material be obtained
❖ What would be the equipment & technology cost?
❖ Collects data o
❖ Material availability
❖ Material Requirement planning
❖ Plant locatio
❖ Plant capacit
❖ Machinery & equipment
❖ Plant layou
❖ After collecting answer and data it is tried too judge that whether it will be possiobe to start the business as per
the operation requirements
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 Dimensions of Feasibility Study

❖ Financial Feasibilit
❖ Financial feasibility is done to assess nancial issues of the proposed business venture
❖ Following cost estimates have to be done
❖ Cost of Land & building: depending on the requirement & the availability of funds the land &
building can be hired, can be taken on lease or purchased.
❖ Cost of Plant & Machinery: It includes estimates of cost of plant & machineries, their running &
maintenance cost
❖ Preliminary cost estimation is made to assess how much cost would be required in conducting
market survey, preparing feasibility report, expenses in registering & incorporating machine,
establishment expenses, expenses in raising capital from public & other miscellaneous expenses
❖ Provision for contingencies needs to be done to cover certain unexpected expenses which can
emerge due to change in the external environment like increase in price of raw material like
transport cost goes up if the petrol prices are revised.
❖ Working capital estimates for running the business are also made
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 Dimensions of Feasibility Study

❖ Financial Feasibility (Continued
❖ Cost of production, which would include raw material cost, labour cost, overhead expenses, utilities like
power, water, fuel etc.
❖ Sales & production estimates: Based on the plant capacity the production & sales estimates are made
which help in estimating pro tability
❖ Sales & Production estimates: based on the plant capacity the production & sales estimates are made
which help in estimating pro tability
❖ Pro tability projections are made on the following parameters: Cost Of production, Sales expenses,
Administrative Expenses Expected sale
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❖ Summation of all above gives gross pro

❖ Based on the above information following projections are made: Break even point , Cash ow statement ,
Balance sheet statement , Multiyear projections are made
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 Dimensions of Feasibility Study

❖ Organisational Feasibility Analysi

❖ Organisational feasibility analysis is conducted to determine whether a
proposed business has suf cient management expertise, organisational
competence, and resources to successfully launch its business.
❖ Two key aspects to consider include management ability and resource
suf ciency.
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