Introduction To Feasibility Studies 97

Feasibility Study
first term 08/09
prepared by :
Mohammad
Marwan
Al ashi
1
feasibility study...prepar
Section 1: introduction to
feasibility study
Learning objectives :
1.Determine the economical meaning of
feasibility study.
2.Important of Feasibility Studies.
3.The Components of a Feasibility Study
4.Reasons Given Not to Do a Feasibility
Study
5.Reasons to Do a Feasibility Study
6.Pre-Feasibility Study
2
Definition of Feasibility
:Studies
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.
3
Definition
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.
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.
4
Important of Feasibility
Studies
List in detail all the things you need to
make the business work;
Identify logistical and other businessrelated problems and solutions;
Develop marketing strategies to
convince a bank or investor that your
business is worth considering as an
investment; and
Serve as a solid foundation for
developing your business plan.
5
.Importance
Even if you have a great business
idea you still have to find a costeffective 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.
.Importance
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.
7
.Importance
If the results show that the project is
not a sound business idea, then the
project should not be pursued.
Although it is difficult to accept a
feasibility study that shows these
results, it is much better to find this
out sooner rather than later, when
more time and money would have
been invested and lost.
8
The Components of a
Feasibility Study
Market Feasibility:
Technical Feasibility:
Financial Feasibility:
Organizational Feasibility:
Conclusions:
9
Part 1 : The Components of a

Feasibility Study
Market Feasibility: Includes a
description of the industry, current
market, anticipated future market
potential, competition, sales
projections, potential buyers, etc.
10
Market feasibility
The primary area that the feasibility
study needs to address is potential
market opportunities for the cooperative.
If an adequate level of demand does not
exist for the product and the decision
maker does not know how to differentiate
its product so that it can compete with
established industry players, then the
proposed venture should not be pursued.
11
Questions of Market
feasibility
What type of industry is the decision maker
planning to enter? What are its primary
features?
What are the possible target markets for the
decision maker s product? What demographic
characteristics do they possess? How large
are these markets? Where are they located? Is
the market expected to grow in the future?
Will the decision maker be competing in a
mature industry or a growth industry?
12
Continue :Questions of Market

feasibility
Who are the decision maker s competitors in
this market? How large are these competitors?
How established are they? How do they price
their goods? How will these competitors react to
the entrance of the decision maker ?
How will the decision maker differentiate its
product from those of its competitors? What are
the competitors strengths and weaknesses,
and how would the decision maker compare
against them? How does the decision maker
plan on gaining market share?
What is the projected market share for the
decision maker ?
13
Data of Market feasibility

Data that can help to answer these questions may be
found in already-published information or through primary
research activities such as market surveys conducted on
behalf of the decision maker . Relevant information may
be found through various sources such as government
statistical publications, trade journals, industry reports, or
companies . The Internet has also opened up new routes
to obtaining information.
The answers to market-related questions should help the
decision maker develop realistic estimates of the
projected demand for the decision maker s product for
the first several years of operation. Based on this
projected demand, the decision maker can determine its
anticipated level of business volume, which is needed in
order to design the processing facilities. If the projected
business volume is not large enough to justify a
processing facility, then the project is not feasible.
14

Feasibility Study
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.).
15
Importance of technical feasibility

What type of equipment and technology will the
business need to produce its product? What are the
costs involved? This includes both the initial
purchase and installation costs of the equipment as
well as the operational costs of running the
equipment.
Who are the potential suppliers of this equipment?
Where are they located? What sort of service and
warranties do they provide? How long will it take to
acquire the equipment and begin operations?
Based on its projected business volume, how much
raw product will be required by the decision maker ?
What are the quality specifications? Will the decision
maker have a sufficient membership base that can
provide the raw materials?
16
questions of technical feasibility

What are the possible locations for the
decision maker s facility? What size of facility
is needed? What are the costs of the
building? Does the proposed location have
adequate access to infrastructures and
services such as major highways, railways,
and utilities? Will the decision maker build its
own facility, or purchase an existing location?
Where will the facility be located relative to
the decision maker s customers? Who will be
responsible for the transportation of goods
between the facility and the market? What
are the transportation costs involved?
17
Part 3 :The Components of a

Feasibility Study
Financial Feasibility: Projects how
much start-up capital is needed,
sources of capital, returns on
investment, etc.
18
:Questions of financial feasibility

What are the total start-up costs required
in order to begin operations? For instance,
what are the capital costs of the land,
plant and equipment, and other start-up
costs such as legal and accounting costs?
What are the operating costs involved?
These include the daily costs involved in
running the business, such as wages,
rent, utilities, and interest payments on
outstanding debt. These will determine
the cash flow requirements of the
decision maker .
19
Continue : Questions of financial

feasibility
Based on the estimated demand, what are
the decision maker s revenue projections?
How will the decision maker determine its
pricing arrangements?
What are the possible sources of financing
for the decision maker ? Who are potential
lenders? What will be their required terms
and limitations of borrowing?
Based on the estimated revenues and
costs, what is the projected profit(loss) of
the decision maker ? What is the breakeven point?
20

Feasibility Study
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).
21

Feasibility Study
Conclusions: Discusses how the
business can succeed. Be honest in
your assessment because investors
wont just look at your conclusions
they will also look at the data and
will question your conclusions if they
are unrealistic.
22
Conclusions
The conclusions of the feasibility
study should outline in depth the
various alternatives examined and
the implications and 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.
23
Conclusions
Dont expect one alternative to jump off the
page as being the best one. Feasibility studies
do not suddenly become positive or negative.
As you accumulate information and investigate
alternatives, neither a positive nor negative
outcome may emerge. The decision of whether
to proceed often is 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
you assess the tradeoff between the risks and
rewards of moving forward with the business
project.
24
Conclusions
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.
25
:Summary
Feasibility studies contain
comprehensive, detailed information
about your business structure, your
products and services, the market,
logistics of how you will actually
deliver a product or service, the
resources you need to make the
business run efficiently, as well as
other information about the business.
26
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.
27
Continue : Reasons Given Not

to Do a Feasibility Study
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 feasibility 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.
28
Continue : Reasons Given Not

to Do a Feasibility Study
The reasons given above should not
dissuade you 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. You may
need to live with these decisions for
a long time.
29
Reasons to Do a
Feasibility Study
Conducting a feasibility study is a
good business practice. If you
examine successful businesses, you
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.
30
Continue : Reasons to Do a
Feasibility Study
Gives focus to the project and outline alternatives
Narrows business alternatives
Surfaces 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
Helps to increase investment in the company
Provides documentation that the business venture was
thoroughly investigated
Helps in securing funding from lending institutions and
other sources
31
Continue : Reasons to Do a
Feasibility Study
The feasibility study is a critical step
in the business assessment process.
If properly conducted, it may be the
best investment you ever made.
32

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Introduction To Feasibility Studies 97

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Feasibility Study

first term 08/09

Part 1 : The Components of a

Continue :Questions of Market

Data of Market feasibility

Part 2 : The Components of a

Importance of technical feasibility

questions of technical feasibility

Part 3 :The Components of a

:Questions of financial feasibility

Continue : Questions of financial

Part 4 : The Components of a

Part 5 : The Components of a

Reasons Given Not to Do

Continue : Reasons Given Not

Continue : Reasons Given Not

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