Industrial feasibility analysis:

Introduction
Nur Aini Masruroh

http://aini.staff.ugm.ac.id/ ; Email: aini@ugm.ac.id; n_masruroh@yahoo.com

Questions

What is feasibility analysis?

Why should we perform it?

What do you expect to get from this course?

Materials

Introduction

Non-capital analysis

Business concept
Marketing aspect
Technical and operational aspect
Legal aspect
Environmental aspect

Capital planning and budgeting

Materials (contd)

Basic capital investment analysis

Capital asset pricing model
Replacement analysis
Capital investment analysis in uncertain world
Feasibility report

Grading

Assignments : 50%
Mid term
: 25%
Final exam
: 25% (compulsory)

Text books

J.R. Canada, W.G. Sullivan, D.J. Kulonda, and J.A. White,

2005, Capital Investment Analysis for Engineering and
Management, 3rd Ed., Prentice Hall, New York.
Bodie, Z., Kane, A., and Marcus, A.J., 1999, Investments,
4th Ed., McGraw Hill, Singapore
Bodie, Z., Kane, A., and Marcus, A.J., 2007, Essentials of
Investments, 6th Ed., McGraw Hill, Singapore
E.M Tainer, 1998, Using Economic Indicators to improve
investment analysis, John Wiley & Son, New York.

Whats business?

Wikipedia:
a legally recognized organization designed to
provide goods and/or services to consumers

Activity to create money in a responsible

way

What is the most valuable company today?

CNN Money, 23 Oct 2009

Sales revenues

USD 372.824 bio

Profit

USD 40.610 bio

Employees

107,100

Market

sales revenuesUSD 60.42 bio

profitUSD 17.681 bio

employees

91,000

market

Capitalization USD 353.23 bio

capitalization USD 249.9 bio

GDP Indonesia 2009 USD 629.244 bio !! (231 mio people@ USD 2,724)
*GDP = consumption + gross investment + government spending + (exports imports)

US most valuable company

CNN Money, 23 Oct 2009

Based on market capitalization

1.

Exxon Mobil: $353.23 billion

2.

Microsoft : $249.9 billion

Wal-Mart : $194.3 billion
Apple: $183.88 billion
JP Morgan Chase: $179.84 billion
Google: $175.93 billion
Procter & Gamble : $167.3 billion

3.
4.
5.
6.
7.
8.
9.
10.

Johnson & Johnson : $166.2 billion

General Electric : $161.42 billion
IBM : $159.08 billion

Value chain evolution

70s : COSTS + PROFIT = PRICE

80s : PRICE COSTS = PROFIT

90s : PRICE PROFIT = COSTS

Now: SET TARGETS

PROFIT PRICE COSTS

Activities

New product/process/project/plant/ plan

Ongoing
Replacement the existing tools

Question: should we continue/realize or stop?

What aspects should we consider to make the

decision?

In what extent an alternative is said to be

feasible?

Industries
Manufacture
Service
feasibility studies can be done for both
Different in product, process, problem faced,
performance measurements, etc.

Investing, whats for?

Investor: financial benefit

Government: economic benefit (economic
growth, increase GDP (gross domestic
product), export, import substitution, etc)
Community: social-economic benefit (jobs,
public facilities, etc)

Investment characteristics

Capital intensive
Long term period

Usually need time before getting profit

Resource constrained
Risky wrong decision needs money and
time to improve

Steps of feasibility study

Pre-evaluation study

Non-capital analysis

Feasibility study (bankable)

Start by simplifying the problem (make

necessary assumptions), if looks beneficial,
make it in detail

The top 10 risks for business

Regulatory and compliance

risk
Global financial shocks
Aging consumers and
workforce
The inability to capitalize
on emerging markets
(rapidly developing
economies)

Industry
consolidation/transition
Energy shocks
Execution of strategic
transactions
Cost inflation
Radical greening

Weighting of the top 10 strategic business

risks across the sectors studied

Who may use the feasibility report?

Investor
Funding resources, i.e. bank
Partner(s) to be
Benefactor (donor)
Government