UNIT - 2

OPPORTUNITY STUDY

• An opportunity study is the earliest phase of a project that seeks to

discover and validate a project concept and scope. This occurs in the
initiation phase before detailed requirements gathering and feasibility
studies.
 OUTLINES OF GENERAL OPPORTUNITY
STUDIES
A. Outline of an Area Study
1. Basic Characteristics of the area:
 Geographical location;
 Size;
 Important physical features (e.g. forest, agricultural, sandy, undulating, hilly, riverine,
rocky, water-logged, etc.);
 Contour maps;
 Environmental sensitivity, if any.
2. Population size, and socio-economic data including background, employment and
educational pattern and per-capital income, in the context of the country or state.
3. Major exports from, and imports into, the area.
4. Basic exploited and potentially exploitable factors of production (land, labour natural
resources, etc.)
5. Structure of any existing manufacturing or service industry utilizing local resources.
6. Infrastructural facilities (like transport, power and telecommunications) necessary for
developing new business or industry.
7. A comprehensive check-list of industries or businesses that can be developed exploiting
the resources and facilities available in the area.
B. Outline of a Sub-sector Study
1. The place and role of the sub-sector in the economy.
2. The size, structure and growth rate of the sub-sector.
• The present size and rates of growth of demand of items in the sub-sector which are
a) not imported,
b) partially or wholly imported.
 Rough projections of future demand for each item.
 Identification of the items in short supply that have good growth and/or export potential.
 A broad survey of the raw materials available indigenously.
 Identification of opportunities for development using items 2, 5 and 6 and factors like infrastructure,
transport costs, etc.
 Identification of approximate economic sizes of new or expanded business or industrial units taking into
consideration economics of scale in production and sales.
C. Outline of a Resource-based Study
 Nature of the resource, its prospected and proven reserves, past and expected future growth rates
of tis extraction/utilization, and future potential.
 Role of the resource in national economy, pattern of its utilization and demand in the country, and
exports.
 Industries presently based on the resource, their status (e.g. small-scale, private, public) and
growth pattern, capital employed and. manpower engaged, productivity, future plans and growth
prospects.
 Major constraints and conditions in the growth of industries/businesses based on the resource.
 Estimated growth in demand and prospects of export of items that could utilize the resource.
 Identification of investment opportunities based on items 3, 4 and 5, and of costs, availability and
requirements of factors like transportation, power and water.
 FEASIBILITY STUDY

• A feasibility study—sometimes called a feasibility analysis or feasibility

report—is a way to evaluate whether or not a project plan could be
successful.
• A feasibility study evaluates the practicality of your project plan in order
to judge whether or not you’re able to move forward with the project.
It does so by answering two questions:

1.Does our team have the required tools or resources to complete this
project?
2.Will there be a high enough return on investment to make the project
worth pursuing?
• Feasibility studies are important for projects that represent significant
investments for your business. Projects that also have a large potential
impact on your presence in the market may also require a feasibility study.
• A feasibility study should be conducted after the project has been pitched
but before any work has actually started. The study is part of the project
planning process. In fact, it’s often done in conjunction with a SWOT
analysis or project risk assessment, depending on the specific project.
Feasibility studies help:
• Confirm market opportunities before committing to a project
• Narrow your business alternatives
• Create documentation about the benefits and detriments of your proposed
initiative
• Provide more information before making a go/no go decision
You likely don’t need a feasibility study if:
• You already know the project is feasible
• You’ve run a similar project in the past
• Your competitors are succeeding with a similar initiative in market
• The project is small, straightforward, and has minimal long-term business
impact
• Your team ran a similar feasibility study within the past three years
 DEFINITION OF FEASIBILITY STUDY

• A feasibility study is a detailed analysis that considers all of the critical

aspects of a proposed project in order to determine the likelihood of it
succeeding.
 PRE-FEASIBILITY & FEASIBILITY
AsSTUDIES
pointed out in Section 2.3 above, after the identification stage, the project ideas are subjected to a
process of preliminary filtration through pre feasibility study. This involves the study of the project
idea at a more elaborate level than that carried out at the opportunity study state.

This is an intermediate stage between an opportunity study and a full-fledged feasibility study
primarily designed to probe relatively doubtful project ideas. This stage is recommended to be
followed when project formulation, or a detailed techno-economic feasibility study, which would
enable the investor to arrive at definite decision about the project is both costly and time consuming.

However, but for the difference of depth of analysis and the level of detail in the study, the pre-
feasibility study is on the pattern of the main techno economic feasibility study. Of course, if the
preliminary projections thrown up at the stage of opportunity study are themselves quite encouraging
or decisive, pre-feasibility study stage may be ignored and one may straightaway take up the
feasibility study itself
OUTLINE OF A PRE-FEASIBILITY
STUDY:
Executive Summary : Gives the title, brief description and objectives of the proposal, and a summary of all the
essential findings and recommendations of the study in about two pages.
Project background and history : Identifies the project's sponsor(s) and gives a chronological account of the project
and various studies, surveys or investigations carried out, alongwith their results.
Analysis of demanded supply:
Demand capacities and market : Outlines profiles of customers and their needs, estimates of present and future
trends of gross demand, production capacities set up and their utilization levels, and imports/exports. Describes the
characteristics, potential and role of the industry in national and regional economy, and government's policy
towards it.
Sales forecast and marketing: Covers the qualitative and quantitative aspects of competition to the project,
distributional requirements of the product/ service. Proposes viable sales organisation and sales programme, giving
estimates of annual revenues and costs of marketing and sales (in local/foreign currencies).
Production programme: Proposes production levels of products and by-products. Estimates consequential wastes
and emissions (solid/liquid/gas), and annual expenditure on their disposal or treatment.
 Analysis of inputs: Gives approximate requirements of raw, semi-processed/ processed materials, utilities
auxiliary materials, tools and spares, etc. alongwith availability, sources or supply and estimates of annual
costs (local/foreign).
Location and site: Recommends geographical location and sitting of the plant/ facilities and specifies essential
related activities and cost-estimates.
Engineering & technology: Describes in suitable detail,
the exact scope of the project,
technology(ies) and processes that can be applied to the project considering the proposed capacity, location,
and nature of inputs, and estimates of costs (local/ foreign) of the inputs.
rough layout of the basic plant & equipments (covering production/auxiliary/ service equipments) and related
costs (local/foreign), and
Civil engineering works (covering site preparation and development, buildings & structures, special civil
works, and outdoor works) together with rough cost estimates (local/foreign).

Organisation: This gives, an outline of one recommended organisation structure for production, sales, and
administration; and estimates of overhead costs (covering factory, administration and financial
arrangements).
Financial & economic evaluation: This covers - estimates of total costs of investment and their cash-flow
pattern, proposed capital structure, modes of financing, and annual financial costs (interest, lease-charges, etc.)
 estimates of total fixed and variable costs of production
 financial evaluation of the project, in terms of -
 pay-back period
 break-even point
 return on investment
 internal rate or return

TECHNICAL ANALYSIS
1. Objectives
2. Location and site
3. Plant Size
4. Technology
5. Design, Layout & Plant & Machinery
6. Construction Process
WHAT IS FEASIBILITY ASSESSMENT? [ or ] WHAT IS A FEASIBILITY STUDY?

 A feasibility study is a process for determining the viability of a proposed initiative or service and
providing a framework and direction for its development and delivery.
 It is a process for making sound decisions and setting direction.
 It is also a process which:
 Is driven by research and analysis
 Usually involves some form of consultation with stakeholders, community, users, etc.
 Focuses on analyzing, clarifying and resolving key issues and areas of concern or uncertainty
 Very often involves basic modeling and testing of alternative concepts and approaches
 There is no universal format for a feasibility study.
 Feasibility studies can be adapted and shaped to meet the specific needs of any given situation.
 A feasibility study is designed to provide an overview of the primary issues related to a business idea.
 So, the feasibility study helps to narrow the scope of the project to identify the best business model.
 The purpose of the feasibility study is to validate that the project meets feasibility of cost, technological,
safety, marketability, and ease of execution requirements.
 It is possible for the company to use outside consultants or Subject Matter Experts (SMEs) to assist in both
feasibility studies and benefit-to-cost analyses.
 WHY DO FEASIBILITY STUDIES?
General requirements and potential benefits of conducting feasibility study include:
• Developing any new business venture is difficult.
• Taking a project from initiation of idea to operational stage is a complex and time consuming effort.
• Most ideas, whether from cooperative or investor-owned businesses, do not develop into business operations.
• If these ideas make it to the operational stage, majority of them fail within first six months.
• Projects involve business operations that differ from Individual business.
• These operations involve risks of unfamiliar.
• Feasibility study allows groups developing a business idea to preview potential project outcomes and decide if
they want to continue developing the project.

• FEASIBILITY STUDY IS A USEFUL TOOL AND IS VALID FOR MANY KINDS OF PROJECTS.
 Evaluation of a new business ventures,
 expand existing services,
 build or remodel facilities,
 change methods of operation,
 add new products, or even merge with another business.
 To assists decision makers whenever they need to consider alternative development opportunities.
 Feasibility studies can reveal errors in project design before their implementation negatively affects the project.
 TYPES OF FEASIBILITY
• 1. Technical Feasibility • 7. Safety Feasibility
• 2. Managerial Feasibility • 8. Political Feasibility
• 3. Economic Feasibility • 9. Environmental Feasibility
• 4. Financial Feasibility • 10. Market Feasibility
• 5. Cultural Feasibility
• 6. Social Feasibility
 Technical Feasibility

 This area reviews the engineering feasibility of the project, including structural, civil and
other relevant engineering aspects necessitated by the project design.
 The technical capabilities of the personnel as well as the capability of the projected
technologies to be used in the project are considered.
 In some instances, particularly when projects are in third world countries, technology
transfer between geographical areas and cultures needs to be analyzed to understand
productivity loss (or gain) and other implications due to differences in topography,
geography, fuels availability, infrastructure support and other issues.
 Managerial Feasibility

 Demonstrated management capability and availability, employee involvement, and

commitment are key elements required to ascertain managerial feasibility.
 This addresses the management and organizational structure of the project, ensuring that
the proponent’s structure is as described in the submittal and is well suited to the type of
operation undertaken.
 Economic Feasibility

 This involves the feasibility of the proposed project to generate economic benefits.
 A benefit-cost analysis is required.
 A breakeven analysis when appropriate is also a required aspect of evaluating the economic
feasibility of a project. (This addresses fixed and variable costs and utilization/sales
forecasts).
 The tangible and intangible aspects of a project should be translated into economic terms to
facilitate a consistent basis for evaluation.
 Even when a project is non-profit in nature, economic feasibility is critical. 71
 Financial Feasibility
 Financial feasibility should be distinguished from economic feasibility.
 Financial feasibility involves the capability of the project organization to raise the appropriate funds
needed to implement the proposed project.
 In many instances, project proponents choose to have additional investors or other sources of funds for
their projects.
 In these cases, the feasibility, soundness, sources and applications of these project funds can be an
obstacle.
 As appropriate, loan availability, credit worthiness, equity, and loan schedule still be reviewed as aspects
of financial feasibility analysis.
 Also included in this area are the review of implications of land purchases, leases and other estates in
land.
 Cultural Feasibility

 Cultural feasibility deals with the compatibility of the proposed project with the cultural
environment of the project.
 In labor-intensive projects, planned functions must be integrated with the local cultural
practices and beliefs.
 For example, religious beliefs may influence what an individual is willing to do or not
do.
 Social Feasibility

 Social feasibility addresses the influences that a proposed project may have on the social
system in the project environment.
 The ambient social structure may be such that certain categories of workers may be in
short supply or nonexistent.
 Safety Feasibility

 Safety feasibility refers to an analysis of whether the project is capable of being

implemented and operated safely with minimal adverse effects on the environment.
 Unfortunately, environmental impact assessment is often not adequately addressed in
complex projects.
 Political Feasibility

 Political considerations often dictate directions for a proposed project.

 This is particularly true for large projects with significant visibility that may have
significant government inputs and political implications.
 For example, political necessity may be a source of support for a project regardless of
the project's merits. On the other hand, worthy projects may face insurmountable
opposition simply because of political factors.
 Political feasibility analysis requires an evaluation of the compatibility of project goals
with the prevailing goals of the political system.
 Environmental Feasibility

 Concern must be shown and action must be taken to address any and all environmental
concerns raised or anticipated.
 This component also addresses the ability of the project to timely obtain and at a
reasonable cost, needed permits, licenses and approvals.
 Market Feasibility

 This area should not be confused with the Economic Feasibility.

 The market needs analysis to view the potential impacts of market demand, competitive
activities, etc. and market share available.
 SCOPE OF FEASIBILITY ANALYSIS:

• 1. Need Analysis
• 2. Process Work
• 3. Engineering and Design
• 4. Cost Estimate
• 5. Financial Analysis
• 6. Project Impacts
• 7. Conclusions and Recommendations
 The Elements of a Good Feasibility Study

• 1. The Project Scope

• 2. The Current Analysis
• 3. Requirements
• 4. The Approach
• 5. Evaluation
• 6. Review
 The Project Scope

 The Project Scope is used to define the business problem and/or opportunity to be
addressed.
 The scope should be definitive and to the point; confused narrative serves no purpose
and can actually confuse project participants.
 It is also necessary to define the parts of the business affected either directly or
indirectly, including project participants and end-user areas affected by the project.
 The project sponsor should be identified.
 The Current Analysis

 The current analysis is used to define and understand the current method of
implementation, such as a system, a product, etc.
 From this analysis, it is not uncommon to discover there is actually nothing wrong with
the current system or product other than some misunderstandings regarding it or perhaps
it needs some simple modifications as opposed to a major overhaul.
 Requirements

 how requirements are defined depends on the object of the project's attention.
 For example, how requirements are specified for a product are substantially different
than requirements for an structure, a bridge, or an information system.
 Each exhibits totally different properties and, as such, are defined differently.
 The Approach

 It represents the recommended solution or course of action to satisfy the requirements.

 Here, various alternatives are considered along with an explanation as to why the
preferred solution was selected
 Evaluation

 It examines the cost effectiveness of the approach selected.

 This begins with an analysis of the estimated total cost of the project.
 In addition to the recommended solution, other alternatives are estimated in order to
offer an economic comparison.
 Review

 Review all of the preceding elements.

• They are then assembled into a Feasibility Study and a formal review is conducted with
all parties involved.
INTRODUCTION
In this unit we will discuss the context and mechanics of conducting feasibility studies for projects.
We will particularly study, in a relatively greater detail, the different aspects of techno-commercial
analysis of projects.

NATURE OF PROJECT DECISION

Project decisions are usually complex and long-term investment decisions involving commitment of
not only financial but also other valuable resources, including personnel, facilities and time. These
aim at the creation or improvement of new products or fixed assets (like land, buildings, hospital,
factories, roads, power stations etc.) to meet certain needs and objectives of the investor. All such
decisions, whether in public or private sector, necessarily entail some risk due to their future
orientation. The risk may arise from miscalculate resources, from cost- and time- overruns, setting up
of non-viable units, or building up excessive capacities
 THE PROJECT DEVELOPMENT CYCLE

A typical project would go through a development process having the following three distinct
phases:
1. pre-investment phase, leading to the authorization (investment decision) for a particular
project idea under prevailing conditions;
2. investment phase, involving detailed design and actual implementation, leading to
fructification of erection of relevant assets;
3. operation phase, following the "commissioning" (or start-up) of the completed project. Now
the project would hopefully produce 'the stream of "benefits" for which it was originally
conceived.
We shall briefly examine these phases in the following paragraphs, before proceeding to study
the main subject matter of this Unit in greater detail.
 THE PROJECT LIFE CYCLE

The project life cycle consists of four phases, initiation, planning, execution (including monitoring
and controlling) and evaluation.