Introduction to feasibility studies

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Feasibility Study

first term 08/09

prepared by : Mohammad Marwan

Al ashi

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feasibility study prepared by:mohammad

marwan al ashi(section1-2 (

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

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Definition of Feasibility Studies

the study are directed toward helping answer this question

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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

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Important of Feasibility Studies

• List in detail all the things you need to make the business work;

• Identify logistical and other business-related 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

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and sell your products and services This is

especially important for store-front retail

businesses where location could make or

break your business

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….

• For example, most commercial space leases place restrictions on businesses that can have

a dramatic impact on income A lease may

limit business hours/days, parking spaces,

restrict the product or service you can offer, and in some cases, even limit the number of customers a business can receive each day

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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

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The Components of a Feasibility

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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

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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

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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?

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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 ?

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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

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Part 2 : The Components of a 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.)

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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?

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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?

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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

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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

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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 break-even point?

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Part 4 : The Components of a 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)

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Part 5 : The Components of a Feasibility Study

• Conclusions: Discusses how the business can

succeed Be honest in your assessment

because investors won’t just look at your

conclusions they will also look at the data and will question your conclusions if they are

unrealistic

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challenge its underlying assumptions This is the time to be skeptical.

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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.

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…

• 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

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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

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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

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Continue : Reasons Given Not to Do a

change You may need to live with these

decisions for a long time

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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

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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

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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

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