Feasibility Study

INTRODUCTION
Establishing the feasibility of projects is a critical factor in business success. Many factors may be
involved and invariably luck can and probably will play a hand. Many new projects which have passed
countless feasibility studies have been sunk by unexpected events such as flood. fire, burglary, changes
inlegislation, plague, demographic shifts, an inability recruit and/or keep suitable staff, the failure of a major
customer, seasonal demands, health scares, product recalls due to poor quality, withdrawal of financial
support, weather, new technology and poor management to list but a few. Many projects of course can pass
feasibility tests and studies and be brought undone by sheer incompetence or downright dishonesty. A key
factor in any feasibility study must be ensuring that we are dealing with correct facts, correct assumptions and
up to date financial data. Many projects fail because assumptions were based on incorrect facts. In this book
we have endeavored to provide a diverse range of thought provoking and stimulating information and
checklists on which a professional quality feasibility study can be structured.

DEFINITION OF PROJECT
According to Encyclopedia of Management, "a project is an organized unit dedicated to the
attainment of a goal- the successful completion of a development project on time, within budget, in
conformance with pre-determined program specifications. Now, a project can be defined as a scientifically
evolved work plan devised to achieve a specific objective within a specified period of time.Every project has a
starting point, an end point with specific objectives.

PROJECT CLASSIFICATION
Project classification is a natural corollary to the study of project idea.Different authorities have classified
projects differently.
(i) Agriculture and Allied Sector
(ii) Irrigation and Power Sector
(iii) Industry and Mining Sector
(iv) Transport and Communication Sector
(v) Social Services Sector
(vi) Miscellaneous Sector

PROJECT IDENTIFICATION
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Project identification is concerned with the collection, compilation and analysis of economic data for the
eventual purpose of locating possible opportunities for investment and with the development of the
characteristics of such opportunities. Opportunities, according Drucker (1955), are of three kinds; additive,
complementary and break-through. Additive opportunities are those opportunities, which enable the decisionmaker to better utilize the existing resources without in any way involving a change in the character of
business.

Complementary opportunities involve the introduction of new ideas and as such do lead to a certain
amount of change in the existing structure.
Break-through opportunities, on the other hand, involve fundamental changes in both the structure and
character of business.
Additive opportunities involve the least amount of disturbance to the existing state of affairs and
hence the least amount of risk.
The element of risk is more in other two opportunities. When the element of risk increases, it becomes

more important to precisely define the scope and nature of project idea, to develop alternative solutions for
achieving the project objectives and to select the best possible approach so as to minimize both resource
consumption and risks and to optimize the return or gains.
Project identification cannot be complete without identifying the characteristics of a project. Every
project has three basic dimensions- inputs, outputs and social costs and benefits. The input characteristics
define what the project will consume in terms of raw materials, energy, manpower, finance and organizational
setup. The nature and magnitude of each of these inputs must be determined in order to make the input
characteristic explicit.The output characteristics of a project define what the project will generate in the form
of goods and services, employment, revenue etc., the quantity and quality of all these outputs should be
clearly specified. In addition to inputs and outputs every project has an impact on the society. It inevitably
affects the current equilibriums of the demand and supply in the economy. It is necessary to evaluate carefully
the sacrifice, which the society will be required to make, and the benefits that will accrue to the society from a
given project.
Project do not emerge themselves. The inputs to set up a project can come from different sources such as
Government agencies, credit and financial institutions, non-governmental organization like chambers of
commerce and industry, inter-institutional groups, technical consultancy organizations and inter-national
collaborations. Once the venture ideas have been developed by entrepreneurs by following on or combination
of sources explained, these have to be screened and evaluated in a preliminary fashion on the basis of internal
and external constraints prior to being put to additional tests of pre-feasibility. This project identification
comes to an end by laying down specific project objectives clearly and concisely and without any ambiguity
so that these convey one and the same meaning to all concerned.

INTERNAL CONSTRAINTS
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Internal constraints arise on account of the limitations of the management system, which will eventually
be responsible for the implementation of a project. In India, the internal constraints for the entrepreneurs
while venturing the projects comprise inputs, resources and outputs. These are narrated as under:

Entrepreneurs, while implementing the projects, rely more on outside consultants for preparation of
feasibility reports in the formulation of their projects. The limitation of the part of entrepreneurs to
provide in built project services in the form of preparing feasibility reports is an important internal
constraint in the early implementation of the project.
For early implementation of projects within the budgeted cost and time schedule, all the entrepreneurs
cannot develop independent project management system, organization structure, network analysis and
other elements. In such a situation, the entrepreneurs inherent internal constraints are developing
well-equipped project management strategies and tools while implementing them.
Project goals and objectives lay down the main purpose for which an organization exists. Practically,
project management
team is not much involved with the determination of project objectives.
Certainly this will be another internal; constrain for the project objectives the unrealistic objectives,
which is decided by the top management personnel of the business.
The availability of the necessary internal project elements and resources are physical and nonphysical resources. The physical resources include finance, personnel, inventories and facilities. The
non-physical resources are patents secret processes, unique experience and skills. Both the physical
and non-physical resources are the important constraints for the entrepreneurs to make available at a
time when the project implementation is in progress.

IDEA GENERATION
Project selection process starts with the generation of a product idea. In order to select the most
promising project, the entrepreneur needs to generate a few ideas about the possible projects he/she can
undertake. The project ideas can be discovered from various-internal and external sources. These may include:

Knowledge of potential customer needs,

Watching emerging trends in demands for certain products,
Scope for producing substitute product,
Going through certain professional magazines catering to specific interests like electronics,

computers etc.,
Success stories of known entrepreneurs or friends or relatives,
Making visits to trade fairs and exhibitions displaying new products and services,
Meeting with the Government agencies,
Ideas given by the knowledgeable persons,
Knowledge about the Government policy, concessions and incentives, list of items reserved

for exclusive manufacture in small-scale sector, and

A new product introduced by the competitor.

PROJECT SELECTION
Project selection starts from where project identification ends. After having some project ideas, these
are analyzed in the light of existing economic conditions, the government policy and so on. A tool generally
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used for this purpose is, what is called in the managerial jargon, SWOT analysis. The intending entrepreneur
analyses his/her strengths and weaknesses as well as opportunities/competitive advantages and
threats/challenges offered by each of the project ideas. On the basis of this analysis, the most suitable idea is
finally selected to convert it into an enterprise. The process involved in selecting a project out of some
projects is also described as the "zeroing in process".
Project identification and selection is half done in the process of establishing an enterprise. The
entrepreneur needs to analyze other related aspects also like raw material, potential market, labor, capital,
location, forms of ownership etc. It is necessary to mention that each of these aspects has to be evaluated
independently and in relation to each other.
Project ideas identified earlier are screened on the basis of their technical, economic and financial
soundness. After screening the ideas are translated into project profiles. A project profile consists of the
following broad items.
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o
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o
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Economic size
Status of industry or scope
Raw material availability
Cost of production
Capital cost
Utility requirements
Infrastructure facilities needed
Profitability
Government policy.

After gathering a large number of project profiles, the entrepreneur is faced with the problem of selecting
the most appropriate project. The following criteria may be used for this purpose.
Investment size
Investment size depends upon the entrepreneurs capacity to raise resources and his attitude towards
economies of scale. If the project is to be financed through all-India institutions with lesser promoters
contribution, the project cost should be at least Rs.3 to 5 cores.
Location
A new entrepreneur should as far as possible locate his project in and around a state headquarters. Such a
location helps to attract competent managers and facilitates liaison with the State Industrial Development
Corporation, the State Electricity Board and various other agencies.
Technology
It is better for a new entrepreneur to go in for a project with proven technology, which is indigenously
available. It avoids the problems of foreign technical collaboration and makes life easier.
Equipment

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While selecting the equipment the advice of experienced technical consultants should be obtained. Some
entrepreneurs enter into some sort of a deal with the equipment manufacturers for a kick-back and in the
process sacrifice quality. This is shortsightedness and no compromise on quality should be made.
Marketing
It is advisable to go in for a product with a limited number of industrial customers. A new entrepreneur
should not go into a project having cut throat competition.
Power & water
The entrepreneur should ensure abundant supply of these two inputs. If possible, power-intensive and waterintensive projects should be avoided.
Others performance
A new entrepreneur should judge how well the existing units in the industry are doing. It is not advisable to
enter into industries in which seasoned entrepreneurs fear to tread. As a rule, one should get into a line in
which others are doing reasonable well.
Working Capital Requirements
the entrepreneur should avoid projects with very long operating cycle and requiring huge working capital.
The lending policies of banks are unpredictable and, therefore, good margin money should be provided for.
This is particularly necessary when the entrepreneur has to buy from any government agency (advance
payments) or to sell to a government agency (delayed settlement of bills).
Labor component
A shrewd entrepreneur should minimize unskilled and semi-skilled labor. Material handling labor can be
reduced through automatic handling devices and proper buying policies.
Economic viability
The project should break-even on a cash basis in the first 6-8 months. It should generate profits in the first
year of operations.

What is a Feasibility Study?

As the name implies, a feasibility study is an analysis of the viability of an idea. The feasibility study focuses
on helping answer the essential question of should we proceed with the proposed project idea? All activities
of the study are directed toward helping answer this question.Feasibility studies can be used in many ways but
primarily focus on proposed business ventures. Farmers and others with a business idea should conduct a
feasibility study to determine the viability of their idea before proceeding with the development of a business.
Determining early that a business idea will not work saves time, money and heartache later.

When to do a study?
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If we are considering conducting a feasibility analysis to investigate the viability of a potential business
venture, answering the following six questions will help guide we through the process. By using these as a
guide, it will help we move through the process efficiently while helping we gets the most out of the analysis.
The decision to conduct a feasibility study should not be taken lightly. It is an expensive and time consuming
process. However, not doing a feasibility analysis can be even more expensive in terms of the poor decisions
we may make from not conducting the proper analysis. To help we understand when to conduct a feasibility
study, we may want to review Information File
We need to be far enough along in the deliberation process of our business idea to make the best use of a
feasibility study. So we need to have a clearly defined outline of one or more alternative business models or
scenarios that we want to explore. And we want to have conducted sufficient initial investigation of these
alternatives to determine if they have the potential of being viable. We dont want to spend our feasibility
money investigating ideas that we can determine are not feasible by just making a few phone calls.
This means that we will need to have already done much of the early investigation and exploration of our
business idea before we schedule a full blown study. This early investigation or pre-feasibility analysis can be
done by members of our committee or with the help of a consultant. We may start by doing a marketing study
to determine if the business idea has market viability. If it does not, we have saved time and money by not
commissioning a comprehensive feasibility study. If the idea has market viability, we can move forward with
the feasibility analysis and use the market analysis in the feasibility study.

Reasons to Do a Feasibility Study

Conducting a feasibility study is a good business practice. If we examine successful businesses, we will find
that they did not go into a new business venture without first thoroughly examining all of the issues and
assessing the probability of business success.Below are other reasons to conduct a feasibility study.
Gives focus to the project and outline alternatives.
Narrows business alternatives
Identifies new opportunities through the investigative process.
Identifies reasons not to proceed.
Enhances the probability of success by addressing and mitigating factors early on that could affect the

project.
Provides quality information for decision making.
Provides documentation that the business venture was thoroughly investigated.
Helps in securing funding from lending institutions and other monetary sources.

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Helps to attract equity investment.

The feasibility study is a critical step in the business assessment process. If properly conducted, it may be the
best investment we ever made.

FEASIBILITY STUDY PROCESS

Feasibility analysis is the process of evaluating the future of a project idea within the limitations of the
project implementing body and the constraints imposed on the project situation by the environment. The
analysis is undertaken to determine the desirability of investing in further development of project idea. When
a project is taken
Up for development three alternatives can arise. First, the project many appear to be positive and in such
a case the project assessing body can proceed to invest further resources in pre-investment studies and design
development. Secondly, the project may turn out to be not feasible and, therefore, further investment in the
project may turn out to be not feasible and, therefore, further investment in the project idea is ruled out.
Thirdly, the data is not adequate for arriving at a decision about the feasibility of the project. In such a
situation, additional information must be collected and the investment decision is deferred till the final
decision.
Projects identified are normally analyzed in order to establish their viability from different angles such as
technical, marketing, technical and their considerations are studied and then findings, with the supporting
data, are presented in a systematic form. Generally, the exercise in project feasibility analysis is carried out
dividing it formally into three stages, viz., pre-feasibility study, feasibility study and project report.

PRE-FEASIBILITY STUDY
A pre-feasibility study may be conducted first to help sort out relevant scenarios. Before proceeding
with a full-blown feasibility study, we may want to do some pre-feasibility analysis of our own. If we find out
early-on that the proposed business idea is not feasible, it will save we time and money. If the findings lead we
to proceed with the feasibility study, our work may have resolved some basic issues. A consultant may help
we with the pre-feasibility study, but we should be involved. This is an opportunity for we to understand the
issues of business development.
The project idea must be elaborated in a more detailed study. However, formulation of a technoeconomic feasibility study that enables a definite to be made on the project is a costly and time-consuming
task. Therefore, before assigning funds for such a study, a preliminary assessment of the project idea must be
made in a pre-feasibility study.
The principal objectives of such a study are to determine whether (a) The investment opportunity is so
promising that an investment decision can be taken on the basis of information elaborated at the pre-feasibility
stage,(b) the project concept justifies a detailed analysis by a pre-feasibility study (c) any aspects of the
project are critical to its feasibility and necessitate in-depth investigation through functional or support studies
such as market surveys, laboratory tests, pilot plant tests;(d) the information is adequate to decide that the
project is not either a viable proposition or attractive enough for a particular investor or investor group.
A prefeasibility study differs from a detailed feasibility study primarily with regard to the detail of the
information obtained. Even at the pre-feasibility stage it is necessary to examine, perhaps broadly, the
economic alternatives of; (a) Market and plant capacity: demand and market study, sales and marketing,
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production program and plant capacity;(b) Material input;(c) location and site; (d) project engineering ;
technologies and equipment and civil engineering works;(e) Overheads; factory, administration and sales;(f)
Manpower; labor and staff;(g) project implementation;(h) Financial analysis-investment costs, project
financing, production costs and commercial profitability.

Evaluate Alternatives
A feasibility study is usually conducted after producers have discussed a series of business ideas or
scenarios. The feasibility study helps to frame and flesh-out specific business scenarios so they can be
studied in-depth. During this process the number of business alternatives under consideration is usually
quickly reduced.
During the feasibility process we may investigate a variety of ways of organizing the business and positioning
our product in the marketplace. It is like an exploratory journey and we may take several paths before we
reach our destination. Just because the initial analysis is negative does not mean that the proposal does not
have merit. Sometimes limitations or flaws in the proposal can be corrected.

FEASIBILITY STUDY
It is the most important part of project analysis, for it provides answers to questions in detail on different
aspects relating to a project. In practice this means investigating the project from six different aspects
economic, technical, managerial, organizational, commercial and financial. The relative importance of these
different aspects varies considerably according to the type of project involved. For example, in the analysis of
public sector projects more importance is usually given to wider social benefits than to narrow financial
profitability. It will define and analyze the critical elements that relate to the production of a given product
together with alternative approaches to such production. Such a study should also provide a project of a
defined production capacity at a selected location using a particular technology or technologies in relation to
defined materials and inputs, at identified investment and production costs, and sales revenue yielding a
defined return on investment.
The feasibility study is an iterative process covering all aspects of an investment project such as possible
alternative solutions for production programmes, locations, technology, organizational setup, etc. if the
resulting data show a non-viable project, several parameters and the production programmes, materials inputs
or technology should be adjusted in an attempt to present a well defined viable project. The feasibility study
should describe this optimization process, justify the assumptions made and the solutions selected and define
the scope of the project as the integration of the selected partial alternatives. If, however, the project is not
viable despite all alterations reviewed, this should be stated and justified in the study.
Most of feasibility studies have the same or similar coverage, though there may be considerable difference
in orientation and emphasis depending on such factors as the nature of the industry, the magnitude and
complexity of the production unit contemplated, investment and other costs involved. By and large, however,
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a satisfactory feasibility study must analyze all the basic components and implications of an industrial project
and any shortfall in this regard will limit the utility of the study.

TECHNICAL FEASIBILITY
The first step in the feasibility stage, Technical Feasibility, involves development of a working model of the
product or service. It is not necessary that the initial materials and components of the working model represent
those that actually will be used in the finished product or service. The purpose of the working model is to
demonstrate, to our own satisfaction, that the product or service is functional and producible. It also provides a
visual means to share our concept with others. The concept of a mechanical working model is easier to grasp
and understand than software, e-commerce or service-related products. E-commerce models require
verification of the ability to integrate the computers, servers, software and programming needed to support the
operational concept. Services, packaged as a set of value-added activities, should deliver observable benefits.
Definition: The process of proving that the concept is technically possible.
Objective: The objective of the technical feasibility step is to confirm that the product will perform and to
verify that there are no production barriers.
Technical Activities: During the technical feasibility step the following must be completed.

Test for technical feasibility;

Examine the operational requirements;
Identify potential safety and environmental hazards;
Conduct a preliminary production feasibility assessment;
Conduct a preliminary manufacturing assessment;
Estimate engineering prototype costs
Technical Information: The technical feasibility will usually result in knowledge about the product or
process design, performance, production requirements, and preliminary production costs.

Technical Assessment
Facility needs

Estimate the size and type of production facilities.

Investigate the need for related buildings, equipment, rolling-stock, etc.

Suitability of production technology

Investigate and compare technology providers.

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

Identify limitations or constraints of the technology.

Availability and suitability of site

Investigate access to:

raw materials

transportation

labor

production inputs (electricity, natural gas, water, etc.)

Investigate potential emissions problems.

Analyze other environmental impacts.

Identify regulatory requirements.

Explore economic development incentives.

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.

Other inputs

Investigate the availability of labor including wage rates, skill level, etc.

Assess the potential to access and attract qualified management personnel.

Technical Analysis
In this section we can describe the technology involved in production, processing, manufacturing or other
aspects of the business. Use the points below to help we prepare this section.
1. Current Industry State of the Art
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Describe how the industry creates similar products today

Describe the evolution of technology trends (e.g., speed of developments, rate of change adoption,
expected future developments, etc.)

2. Technology to be utilized

What is the status of the proposed technology idea stage, development stage, prototype, pilot
facility, proven commercially. How was the proposed technology procured?

How does it offer unique value and what is that value?

Has it been applied successfully elsewhere? What are its challenges?

When using the technology, what are the ramifications to other aspects of the companys operations?

3. Suitability of Production Technology

Explain the reliability and competitiveness of the technology in making our product.

Outline how we chose our technology providers.

Describe limitations or constraints of the technology.

Identify any performance agreement we have in place.

4. Proprietary Protection/Rights/Claims

Will we protect proprietary information as a trade secret? How secure is our trade secret against
reverse engineering or other method of accessing the information?

Describe any existing patents or patent applications. Will we be able to financially defend these by
legal action against infringement by competitors?

Describe any copyrights, trademarks, non-compete agreements or other aspects of intellectual

property.

Describe any rights (e.g. licenses) to use technology exclusively or on preferred terms.

If no proprietary rights exist, how long will the technology offer unique marketplace value before
being adopted by others?

Describe other emerging technologies that may compete with or displace the technology to be used,
and the expected time-frame for introduction of those technologies.

Be careful not to disclose any trade secrets or other confidential information in our business plan.

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FINANCIAL/ECONOMIC FEASIBILITY
Once the technical feasibility and market studies are complete, it is time to determine Business Feasibility.
The first purpose of this effort is to financially model the venture opportunity and achieve a break-even
analysis. In other words, based upon the costs of goods sold, capital costs, and management and
administration, how much revenue generated from units sold is required to break-even and over what period
of time. Once a break-even analysis is developed, the entrepreneurs can develop realistic financial projections
for best case and worst case scenarios. These scenarios will be critical in strategic planning, milestone
development and venture valuation analysis. The simple objective is to determine what level of revenue is
required to satisfy the return on investment demanded by the founder and/or the investors.
Definition: The economic feasibility step of business development is that period during which a break-even
financial model of the business venture is developed based on all costs associated with taking the product
from idea to market and achieving sales sufficient to satisfy debt or investment requirements.
Objective: The objective of the economic feasibility is to develop a financial model of the business venture.
Business Activities: The business activities common to this step are those necessary to develop a conceptual
plan for a business venture based upon one or more financial scenarios.
During the economic feasibility step, the following activities must be completed.
Develop a financial analysis that identifies break-even scenarios based upon unit prices, volume of
sales, and costs;
Determine whether the business opportunity presents sufficient profit margins to justify a business
venture;
Assess the merits of licensing the opportunity compared to venturing

Financial/Economic Assessment
Estimate the total capital requirements

Assess the seed capital needs of the business project during the investigation process and start-up,
and how these needs will be met.

Estimate capital requirements for facilities, equipment and inventories.

Estimate working capital needs.

Estimate start-up capital needs until revenues are realized at full capacity.
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Estimate contingency capital needs due to construction delays, technology malfunction, market access
delays, etc.

Estimate other capital needs.

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.

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.

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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MARKET FEASIBILITY
The Market Study is the next activity in the feasibility step. The objective of the market study is to quantify
the market assumptions we made in the market assessment of the initial concept investigation. In other words,
who exactly is the target market, what are its characteristics, what competitive products does it currently use,
how many do they use, what are the price points, how is the industry structured, how is the product
distributed, what are the regulatory, environmental and economic factors, what are the barriers to market entry,
and what will offer we a sustainable competitive advantage? The objective here is a thorough quantitative
analysis.
Definition: The process of identifying the price range at which a quantified market segment is willing to
purchase the product and justifying why the target market will chose the product over the competitions.
Objective: The objective of the feasibility step is to identify who will buy the product, how many units will
they buy, and how much they will pay.
Marketing Activities: The marketing activities common to this step are those necessary to demonstrate that
there is market justification for the product.
During the market study step the following activities must be completed:
Describe the market environment;
Identify economic and industry trends;
Quantify the size of the market;
Identify the market segments;
Analyze market segment size, growth rate, competitive environment;
Analyze business capabilities for market share, competitive position, product capabilities, resource
capabilities

Market Assessment
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?
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Identify the life-cycle of the industry, market and/or market segment(s). Is it emerging, growing,
mature, declining?

Industry competitiveness

Describe the industry concentration. Are there just a few large producers or many small producers?

Describe the major competitors? Will we 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 our product/service.

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 our potential share of the market or market segment.

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.

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.).

ORGANIZATIONAL/MANAGERIAL FEASIBILITY
Business structure
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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.

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?

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.

BEFORE FEASIBILITY
Business Structure

Why will the business be successful?

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What is the existing or proposed legal structure new generation cooperative, Limited Liability
Company, corporation, etc.?

What is the organizational structure?

Include any joint venture partners, subsidiaries, affiliates, or other important stakeholders.

Describe our overall business strategy (e.g. low cost producer, differentiated product, niche market,
etc.). Will the company focus on growth or cash returns to investors)?

Products/Services

Describe the product or service and its features.

Is the product ready for the market or in development (if so, what stage of development and what
obstacles remain)?

Is the product a consumer product, ingredient, commodity, etc.?

Describe what is unique or different about our product/service.

Compare the product and its features to those of competitors.

Describe how the product will be packaged and any specific features of the package.

Has product acceptance been tested with consumers? Have sales actually been realized? Describe
sales results to date or product testing results.

Research and Development Plans

Describe plans for ongoing research and development (e.g. plans for process improvement or new
product development).

Identify the extent to which resources will be committed to future research and development.

How will research and development efforts be inter-connected with customer needs (e.g. ISO)?

Identify the use of third parties and any strategies related to the outsourcing of future research and
development capabilities.

Operations Plan
1. Description of operations

Outline the operations activities of our business.

What activities will be conducted in-house and which will be outsourced (make or buy decisions).

Describe our relationship with venders, suppliers, others.

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Are there any contracts or letters of intent in place?

Describe how operations will meet the needs of the customers in our target market.

Specify how operations will deliver dimensions such as quality, cost, timeliness, service, flexibility,
etc.

If our operations plan gives us a competitive advantage, describe it.

Describe the operating costs and assumptions that will be used in the financial section.

2. Determine facility needs

Describe the general design and technical requirements.

Determine the size and type of production facilities.

Assess the need for related buildings, equipment, rolling-stock, etc.

Production Inputs
1. Production Inputs

Describe the amount, type and quality of production inputs needed.

Outline the current and future availability and access to these production inputs.

Describe the concentration and competitiveness of input suppliers and product/service providers.

Describe the production inputs procurement plan. This includes specific names of key suppliers, the
type, quantity and quality of inputs supplied, their background and reliability, the expected credit and
delivery policies, and the need for backup suppliers.

What is the cost of production inputs (including the input price and price variability due to
seasonality, weather variability, etc.)?

Describe the extent to which inputs will be contracted or hedged to mitigate risk of price or supply
volatility. Identify and describe actual or expected contract arrangements for production inputs.

2. Member Suppliers (for businesses where members/owners are the suppliers of commodity or specialty
product inputs).

Describe how much of the commodity or specialty product inputs will be supplied by
members/owners. How much supplied by non-members?

If a Uniform Marketing Agreement will be used to access supplies from member/owners, describe the
provisions.

If a special quality grid (or other method) will be used to measure quality, describe it.
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If special production and handling practices will be used (ie. identify preservation, certification, etc.),
describe them and the process for rejecting inputs not meeting specifications.

For perishable commodities/products, describe the plan for coordinating timing of the input to
processing needs.

Labor Plan

Describe the type and amount of labor needed for the business.

Determine the accessibility of labor including wage rates, skills level, etc.

Describe any labor training programs we plan to provide.

Describe the projected wage rate and benefits programs we plan to provide.

Describe the extent to which organized labor may be a potential issue for the business.

Regulatory and Environmental Requirements

Describe any regulatory approvals or permits that must be sought or maintained for the business to
operate.

Is the business subject to ongoing oversight by any Federal or State regulatory body? What are some
of the key compliance requirements?

Identify permits/inspections that must be obtained for operations. Have we obtained these permits?

What are the current regulatory requirements and trends of this industry?

What are the environmental challenges facing the business?

What are some of the companys primary strategies for dealing with environmental issues?

Are there intellectual property rights existing or pending

Implementation Plan
1. Implementation Plan

Business plan completed.

Legal structure completed.

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Finalize contracts for sale of product.

Equity raised.

Debt financing in place.

Site selected.

Finalize contracts with distributors and sign-up dealers.

Finalize contracts for purchase of utilities and production inputs.

Finalize contracts for construction or purchase.

Completion of facility.

Facility running at full capacity.

Other.

2. Implementation Costs

Describe the implementation costs needed to accomplish the tasks listed above.

These costs should be included in the capital plan, financial plan and budgets of the business plan.

Supporting Documents

Documents of support/commitment from product buyers, input suppliers, bankers, and other
stakeholders.

Audited financial report.

Due diligence on business assumptions and its leaders.

Copies of leases, contracts and other legal documents.

Licenses, permits, patents, and other intellectual property information.

Details of marketing studies.

Environmental assessments/audits.

Building permits.

Special management plans imposed by regulatory agencies or lending institutions.

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Facility design and lawet.

Technology specifications.

Uniform marketing agreement for input purchases from members/investors.

Promotional materials and news articles

Business organization documents.

Legal agreements.

Budget Projections
Many business ventures budget expected revenues and expenses. In this section describe our budget
projections and the budget procedures we used. Describe the assumptions used in computing these estimates.
Identify expected price per unit along with direct production expenses and profit margin.
Use the points below to help us prepare this section.

Operations Budgeting Budgets for production, processing, distribution/transportation, marketing,

entire supply chain, others.

Volume-Cost-Profit Analysis Analysis for computing the volume of sales needed to break-even.

Capital Budgeting Analyzing investment decisions through Net Present Value and Internal Rate of
Return.

Cash-Flow Budgeting Projecting the expected sources and uses of cash during various time periods.

Capital and Contingency Plans

1. Capital Plans

Project the capital cost of major facilities, equipment and peripheral facilities. Make a list of these
items.

Project the capital cost of working capital including inventories, etc.

Project the capital cost for the marketing plan.

Project the schedule of capital replacement needs for facilities and equipment.
2. Contingency Plans
Identify risk factors (from risk section).
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Identify and assess internal weaknesses of the business (project).
Use sensitivity and what-if analysis to identify deficiencies.
Develop and describe plans or alternative courses of action in case these
weaknesses or deficiencies occur.
Project the contingency capital needs for the business venture. This focuses on
capital reserves needed if the business venture does not unfold as expected.

Financial Data and Analysis

1. Historical Information (past three years)

Balance Sheets

Income Statements

Income Tax Returns

Financial Performance

2. Pro Forma Information during Start-Up (provide notes of explanation and assumptions)

Balance Sheet

Income Statement

Cash Flow Statement (monthly)

Sources and Uses of Funds Statement

3. Pro Forma Information under Full Production (provide notes of explanation and assumptions)

Balance Sheet

Income Statement (monthly first year, quarterly second and third years)

Cash Flow Statement (monthly first year, quarterly second and third years)

Sources and Uses of Funds Statement

4. Sensitivity Analysis

What are the key variables affecting profitability and cash-flow?

Identify the levels of these variables (worst case, best case, expected).

Project profitability and cash-flow under various combinations of these variables.

Project profitability and cash-flow breakeven under various assumptions.

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Conduct Monte Carlo simulation

5. Other Information

Compare to Industry Standards (ie. Dun & Bradstreet, Risk Management Associates, etc.)

Show how the financial information is consistent with the marketing, operations and other plans
outlined in previous sections.

Identify control mechanisms that will measure actual versus planning performance.

Exit/Reorganization Plan
Businesses are usually expected to last to perpetuity. However, industry, market and business conditions can
change our plans. Some businesses are created with a definite exit plan in place. They may be created with
the expectation of being sold later at a higher price. Or it may be expected to be reorganized later when market
conditions or technology change. Even if the business will not be sold, exit plans are often created for the
investors.
1. What is our exit strategy?

Liquidate assets

Create a successful business that will be sold to a competitor at a high price.

Provide investors the opportunity to liquidate their investment (timing and method).

Go public

2. What is our long-term business strategy?

When do we expect market, technology or other changes to significantly affect our business?

What are our plans for addressing these issues?

Project Leadership

List the leaders/founders of the project.

Provide resumes of their background and experience (include skills relevant to this project).
a. Name
b. Current employment, or self-employed
c. Number of years with current employment (self-employment)
d. Prior employment or self-employment
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e. Primary responsibilities and authority
f.

Level of education

g. Unique experiences and special skills

h. Industry knowledge and experience
i.

Community involvement

Describe how the founders will be rewarded.

If the project has a manager, describe the person and his/her qualifications.

Lists advisors and consultants used in the project and their qualifications.
a. Accounting services
b. Legal services
c. Industry consultants/service providers
d. Business development consultants/service providers
e. Grant writing
f.

Others

DETAILED PROJECT REPORT

FEASIBILITY REPORT
The details gathered from feasibility studies and presented in various tables, reports and statements
are consolidated into one master report called project report or feasibility report. This report also contains
some background information about the industry to which the project belongs, and the enterprise submitting
the report. The main purpose of the report is to provide information that is required for the project appraisal.
In the case of public sector projects this report would also enable the concerned authorities to take an
objective decision on the project. In addition, this report would enable the financing agencies to purposefully
evaluate the project before extending financial assistance.
The difference between project formulation and preparation of the detailed project report should be
clearly understood. Project formulation is an investigating process, which precedes investment decisions. Its
purpose is to present relevant facts before the decision makes to enable them to accept or reject the project.
Therefore, the project idea is examined from the viewpoint of overall objectives, financial viability, technical
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feasibility and social impact. On the other hand, detailed project report preparation is a post-investment
decision.

It involves the preparation of detailed specifications and design, engineering drawings, site

investigation, foundations design and process design as well as time schedules for project implementation.
Detailed project report (DPR) serves as the work plan for the implementation of a project whereas project
formulation and pre-investment report (PIR) is the basis on which the investment decision is taken. Thus,
project formulation always precedes detailed project report.

Next Step
After the feasibility study has been completed and presented to the leaders of the project, they should carefully
study and analysis the conclusions and underlying assumptions. Next, the leaders will be faced with deciding
which course of action to pursue. Potential courses of action include:

Choosing the most viable business scenario or model, developing a business plan and
proceeding with creating and operating a business.
Identifying additional scenarios for further study.
Deciding that a viable business opportunity is not available and moving to end the
business investigation process.
Following another course of action.

Results and Conclusions

The conclusions of the feasibility study should outline in depth the various scenarios examined and the
implications, strengths and weaknesses of each. The project leaders need to study the feasibility study and
challenge its underlying assumptions. This is the time to be skeptical.Dont expect one alternative to jump off
the page as being the best scenario. Feasibility studies do not suddenly become positive or negative. As we
accumulate information and investigate alternatives, neither a positive nor negative outcome may emerge.
The decision of whether to proceed is often not clear cut. Major stumbling blocks may emerge that negate the
project. Sometimes these weaknesses can be overcome. Rarely does the analysis come out overwhelmingly
positive. The study will help we assess the tradeoff between the risks and rewards of moving forward with the
business project.Remember, it is not the purpose of the feasibility study or the role of the consultant to decide
whether or not to proceed with a business idea. It is the role of the project leaders to make this decision, using
information from the feasibility study and input from consultants.
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Go/No-Go Decision
The go/no-go decision is one of the most critical in business development. It is the point of no return. Once
we have definitely decided to pursue a business scenario, there is usually no turning back. The feasibility
study will be a major information source in making this decision. This indicates the importance of a properly
developed feasibility study.

Reasons Given Not to Do a Feasibility Study

Project leaders may find themselves under pressure to skip the feasibility analysis step and go directly to
building a business. Individuals from within and outside of the project may push to skip this step. Reasons
given for not doing a feasibility analysis include:

We know its feasible. An existing business is already doing it.

Why do another feasibility study when one was done just a few years ago?

Feasibility studies are just a way for consultants to make money.

The market analysis has already been done by the business that is going to sell us the equipment.

Why not just hire a general manager who can do the study?

Feasibility studies are a waste of time. We need to buy the building, tie up the site and bid on the
equipment.
The reasons given above should not dissuade we from conducting a meaningful and accurate feasibility study.
Once decisions have been made about proceeding with a proposed business, they are often very difficult to
change. We may need to live with these decisions for a long time.

How to accept or reject the study?

At the end of the study, the consultant will provide the committee with a draft of a final report. Before we start
discussing the conclusions of the study and what impact they have on the viability of our project, we must first
review the study to determine if it is accurate, relevant and complete. It is not uncommon for the project
committee to reject the draft of the report and ask for further clarification and analysis.
The study is only as strong as its weakest part. It takes a mistake in only one part of the study to sink the
business venture. So, before we accept the study we should determine that it:
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Is understandable and easy to read

Addresses all of the relevant issues and questions

Lists and discusses all of the underlying assumptions of the project analysis

Meets the expectations of the project committee

Is logically consistent within sections and among sections

Is thoroughly researched using good research techniques

Contains all of the relevant information

Meets the conditions of the consulting contract

It is important that we meet this due diligence requirement because investors and others may question our
procedures and decisions during this period if the business venture eventually fails. We may want to discuss
this with our attorney to make sure the proper safeguards are in place.

How to use the study results?

The purpose of the feasibility study is to provide we with the information needed to determine if the proposed
business venture is viable. However, it will probably not provide we with a magic answer. So we will need to
carefully assess the conclusions of the study and decide if the proposed business venture has sufficient merit
to move forward.If ever there is a time for unemotional, rational and logical thinking, it is now. Mistakes at
this time may be with us for a long time. Common mistakes made by groups at this stage are:
1. The committee members have already made up their minds and rationalize the study results to fit their
decision.
2. Because project committee members tend to be action oriented rather than deliberators, they become
restless to move forward with the project and gloss over important aspects of the study.
3. Because of the importance of the decision and the lack of clear direction from the feasibility analysis,
committee members find they cannot bring themselves to make a decision. Rather, they continually seek more
information.
4. The committee members become confused by the array of information presented to them and pressure their
consultants and others to give definitive answers of whether to move forward with the project. When
committee members respond to questions pertaining to why they moved forward with a project by replying,
our consultants said it would work, are abdicating their decision making responsibility.

RECOMMENDATION
Feasibility study is very important for any project.
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So it should do carefully in term of any project

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