Feasibility Studies

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An important work in project
evaluation in developing
countries

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business success

 Establishing a feasibility study of projects is a critical

factor in business success.
 Many factors can be involved and invariably luck can
and probably will play a hand.

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Key factor

 A key factor in any feasibility study must be ensuring

that you are dealing with correct facts, correct
assumption, and up to date financial data.

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Countless feasibility studies

 Any project which have passed a countless feasibility

studies, have been sunk by unexpected events such as
flood.
 Many projects fail because of incorrect assumptions or
because assumptions were based on incorrect facts.

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Preliminary investigation

 When complex problems or opportunities are to be

defined, it is generally desirable to conduct a
preliminary investigation called a feasibility study.
 The primary objectives of the feasibility study is to
assess three types of feasibility

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Types of feasibility Study

1. Technical feasibility
can a solution be supported with the existing
technology or not?
2. Economic feasibility
is the existing technology cost effective?
3. Operational feasibility
Will the solution work in the organization if
implemented?

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 The Components of a Feasibility Study

1. Description of the Business: The product or

services to be offered and how they will be
delivered.
2. Market Feasibility: Includes a description of the
industry, current market, anticipated future
market potential, competition, sales projections,
potential buyers, etc.
3. 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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4. Financial Feasibility: Projects how much start-up
capital is needed, sources of capital, returns on
investment, etc.
5. 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).
6. 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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Feasibility Study

 A Feasibility Study is the analysis of a problem to

determine if it can be solved effectively.
 The results determine whether the solution should be
implemented.
 This activity takes place during the project initiation
phase and is made before significant expenses are
engaged.

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Definition of Feasibility Studies

 A feasibility study is an evaluation of a proposal

designed to determine the difficulty in carrying out a
designated task. Generally, a feasibility study precedes
technical development and project implementation.

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Definition of Feasibility Studies

 A feasibility study looks at the viability of an idea with an

emphasis on identifying potential problems and
attempts to answer one main question: Will the idea
work and should you proceed with it?

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Objective

 The feasibility study answers the basic questions: is it

realistic to address the problem or the opportunity
under consideration?
 And it produce a final proposal for the management,
this final report might includes:

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Feasibility includes
1. Project name
2. Problem or opportunity definition
3. Project description
4. Expected benefit
5. Consequence of rejection
6. Resource requirements
7. alternatives
8. Other consideration
9. Theorization

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Five common factors (TELOS)

1. Technology and system feasibility

2. Economic feasibility
3. Legal feasibility
4. Operational feasibility
5. Schedule feasibility

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 1. Technology and system
feasibility

 The assessment is based on an outline design of system

requirements in terms of Input, Processes, Output, Fields,
Programs, and Procedures. This can be quantified in terms of
volumes of data, trends, frequency of updating, etc. in order to
estimate whether the new system will perform adequately or not
this means that feasibility is the study of the based in outline.

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2. Economic feasibility

 Economic analysis is the most frequently used method

for evaluating the effectiveness of a new system. More
commonly known as cost/benefit analysis, the
procedure is to determine the benefits and savings
that are expected from a candidate system and
compare them with costs. If benefits outweigh costs,
then the decision is made to design and implement the
system. An entrepreneur must accurately weigh the
cost versus benefits before taking an action. Time
Based: Contrast to the manual system management
can generate any report just by single click .
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Legal feasibility .3

 Determines whether the proposed system conflicts with

legal requirements, e.g. a data processing system must
comply with the local Data Protection Acts.

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4. Operational feasibility

 Is a measure of how well a proposed system solves the

problems, and takes advantages of the opportunities
identified during scope definition and how it satisfies the
requirements identified in the requirements analysis
phase of system development.[1]

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5.schedule feasibility
 A project will fail if it takes too long to be
completed before it is useful. Typically this
means estimating how long the system will
take to develop, and if it can be completed in a
given time period using some methods like
payback period. Schedule feasibility is a
measure of how reasonable the project
timetable is. Given our technical expertise, are
the project deadlines reasonable? Some
projects are initiated with specific deadlines.
You need to determine whether the deadlines
are mandatory or desirable.
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Other feasibility factors

 Market and real estate feasibility

 Resource feasibility
 Cultural feasibility

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Market and real estate feasibility

 Market Feasibility Study typically involves testing geographic locations for a

real estate development project, and usually involves parcels of real estate
land. Developers often conduct market studies to determine the best location
within a jurisdiction, and to test alternative land uses for a given parcels.
Jurisdictions often require developers to complete feasibility studies before
they will approve a permit application for retail, commercial, industrial,
manufacturing, housing, office or mixed-use project. Market Feasibility takes
into account the importance of the business in the selected area.

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Resource feasibility

 This involves questions such as how much time is

available to build the new system, when it can be built,
whether it interferes with normal business operations,
type and amount of resources required, dependencies,
etc. Contingency and mitigation plans should also be
stated here.

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Cultural feasibility

 In this stage, the project's alternatives are evaluated for

their impact on the local and general culture. For
example, environmental factors need to be considered
and these factors are to be well known. Further an
enterprise's own culture can clash with the results of
the project.

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Description of the Project

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Identification and exploration of business
scenarios
 .Identify alternative scenarios or business models of what the
project will entail, how it will be organized, and how it will
generate profits. These may come from the idea assessment or
market assessment that you may have already completed.
 Eliminate scenarios that don’t make sense.
 Flesh-out the scenario(s) that appear to have potential for further
exploration.

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Define the project and alternative
scenarios
 Describe the type and quality of product(s) or service(s)
to be marketed.
 Outline the general business model (i.e. how the
business will make money).
 Include the technical processes including size, location,
kind of inputs, etc.
 Specify the time horizon from the time the project is
initiated until it is up and running at capacity.

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 Relationship to the surrounding
.geographical area

 Outline the economic and social impact on local

communities.
 Describe the environmental impact on the surrounding
area

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Market Feasibility

 This can be based on a market assessment that you

may have already completed.

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Industry description

 Describe the size and scope of the industry, market

and/or market segment (s).
 Estimate the future direction of the industry, market
and/or market segment (s).
 Describe the nature of the industry, market and/or
market segment (s). Is it stable or going through rapid
change and restructuring?
 Identify the life-cycle of the industry, market and/or
market segment (s). Is it emerging, growing, mature,
declining?

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Industry competitiveness

 Describe the industry concentration. Are there just a few large producers or
many small producers?
 Describe the major competitors?  Will you compete directly against them?
 Analyze the barriers to entry of new competitors into the market or industry.
Can new competitive enter easily?
 Analyze the concentration and competitiveness of input suppliers and
product/service buyers.
 Describe the price competitiveness of your product/service.

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Market potential
 Identify whether the product be sold into a commodity market or a
differentiated product/service market.
 Identify the demand and usage trends of the market or market segment in
which the product or service will participate.
 Examine the potential for emerging, niche or segmented market opportunities.
 Explore the opportunity and potential for a branded product.
 Assess market usage and your potential share of the market or market
segment.

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Access to market outlets

 Identify the potential buyers of the product/service and

the associated marketing costs.
 Investigate the product/service distribution system and
the costs involved.

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Sales projection

 Estimate sales or usage.

 Carefully identify and assess the accuracy of the
underlying assumptions in the sales projection.
 Project sales under various assumptions (i.e. selling
prices, services provided, etc.).

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Technical Feasibility

 Facility needs.
 Estimate the size and type of production facilities.
 Investigate the need for related buildings, equipment,
rolling-stock, etc.

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Suitability of production technology

 Investigate and compare technology providers.

 Determine reliability and competitiveness of technology
(proven or unproven, state-of-the-art, etc.).
 Identify limitations or constraints of the technology.

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Availability and suitability of site
1. Investigate access to:
2. raw materials
3. transportation
4. labor
5. production inputs (electricity, natural gas, water, etc.)
6. Investigate potential emissions problems.
7. Analyze other environmental impacts.
8. Identify regulatory requirements.
9. Explore economic development incentives.

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Raw materials

 Estimate the amount of raw materials needed.

 Investigate the current and future availability and
access to raw materials.
 Assess the quality and cost of raw materials.

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Other inputs

 Investigate the availability of labor including wage rates,

skill level, etc.
 Assess the potential to access and attract qualified
management personnel.

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Financial/Economic Feasibility

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Estimate the total capital requirements
1. Assess the “seed capital” needs of the business project during the
investigation process and start-up, and how these needs will be met.
2. Estimate capital requirements for facilities, equipment and inventories.
3. Estimate working capital needs.
4. Estimate start-up capital needs until revenues are realized at full capacity.
5. Estimate contingency capital needs due to construction delays, technology
malfunction, market access delays, etc.
6. Estimate other capital needs.

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Estimate equity and credit needs

 Estimate equity needs.

 Identify alternative equity sources and capital availability - family,
producers, local investors, angle investors, venture capitalists,
etc.
 Estimate credit needs.
 Identify and assess alternative credit sources - banks,
government (i.e. direct loans or loan guarantees), grants and
local and state economic development incentives.

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 Budget expected costs and returns of
various alternatives
 Estimate the expected revenue, costs, profit
margin and expected net profit.
 Estimate the sales or usage needed to break-
even.
 Estimate the returns under various production,
price and sales levels. This may involve
identifying “best case”, “typical”, and “worst
case” scenarios or more sophisticated analysis
like a Monte Carlo simulation.

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 Assess the reliability of the underlying assumptions of the analysis (prices,
production, efficiencies, market access, market penetration, etc.)
 Benchmark against industry averages and/or competitors (cost, margin,
profits, ROI, etc.).
 Identify limitations or constraints of the economic analysis.
 Calculate expected cash flows during the start-up period and when the
business reaches capacity.
 Prepare pro forma income statement, balance sheet, and other statements of
when the business is fully operating.

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Organizational/Managerial Feasibility

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Business structure

 Identify the proposed legal structure of the business.

 Outline the staffing and governance structure of the business along with lines
of authority and decision making structure.
 Identify any potential joint venture partners, alliances or other important
stakeholders.
 Identify the availability of skilled and experienced business managers.
 Identify the availability of consultants and service providers with the skills
needed to realize the project, including legal, accounting, industry experts,
etc.

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Business founders
 Character matters - are the people involved of outstanding
character?
 Do the founders have the “fire in the belly” required to take the
project to completion?
 Do the founders have the skills and ability to complete the
project?
 What key individuals will lead the project?
 Is there a reward system for the founders? Is it based on
business performance?
 Have the founders organized other successful businesses?

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Study Conclusions

 Identify and describe alternative business scenarios

and models.
 Compare and contrast scenarios based on goals of the
producer group.
 Outline criteria for decision making among alternatives.

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Why Are Feasibility Studies so
?Important
1. The information you gather and present in your feasibility study
will help you:
2. List in detail all the things you need to make the business work;
3. Identify logistical and other business-related problems and
solutions;
4. Develop marketing strategies to convince a bank or investor
that your business is worth considering as an investment; and
5. Serve as a solid foundation for developing your business plan.

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 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.
 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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Feasibility studies V business plans
 A feasibility study is designed to discover if a business is
"feasible" or not. It will answer questions such as "
will your idea work?"  [new window] It is an essential first step
before spending money and time on more detailed plans. The
information gathered is not wasted as it can be incorporated into
the Business Plan.
 On the other hand a Business Plan is a more detailed and in
depth document that incorporates the information gained from a
feasibility study plus specific timelines, detailed budgets with
forecasts and a detailed financial strategy.

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Feasibility before business plan

 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.

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Feasibility is a tool for a business plan

 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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The feasibility study framework

 The document should include sections on:

 Personal details
 The Business Idea
 Critical factors
 Market analysis
 Resource requirements
 Financial viability
 Capital requirements

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