Archive for the ‘Feasibility Study’ Category.

Elements of Feasibility Study

A feasibility study is written to present a problem or opportunity to be studied to determine if the proposed solution or business is viable. It includes the analysis of the current situation, requirement description as well as the evaluation of all alternative solution and the course of action.  Feasibility study can be applied to any kind of project so that you will determine if the project will be implemented successfully.  Likewise, feasibility study is important in business planning because you will know if your prospect business will be profitable or not.

The following are elements of successful feasibility study:

  • Executive Summary. It contains the overview of the project so that investor will be able to know the proposed solution or project without reading the entire documents.
  • Problem Definition.   This section will state the problem intended to solve as well the short description of the proposed solution or opportunity.
  • Current Analysis. It contains the understanding of the current system or product being implemented.
  • Requirements. It provides the requirements needed of the proposed solution.
  • Methods or Approach. It provides the methods or approach to be used in your study.
  • Cost.  Discuss the budget of your proposed solution. It includes the sales forecast and profitability as well as cost benefit analysis.
  • Evaluation.  Evaluates the solution being proposed.

 

Components of Feasibility Study

First of all I would like to define what is feasibility study? Well, a feasibility study is written to find out if the chosen project is feasible before investing money. Feasibility study will determine if the proposed venture is profitable and viable and also to study the possible risk that will encounter during the implementation.

The following are some of the components of feasibility study.

  • Project Description. It contains the project name such as the name of the enterprise as well as the purpose of this business venture. You must also include the information about stakeholders and the end result expected.
  • Goals. It provides the list of your goals and procedures needed to achieve these goals.
  • Timetable. It should have the estimated time to complete the project.
  • Cost and Budgeting. All cost must be included such as all cost incurred for the project.
  • Market Analysis. It provides if the proposed project or business venture has a demand. It includes the market assessment such as the industry description and competitiveness as well as the market potential and sales projection.
  •  Technical Analysis. It contains the competiveness of technology and it identifies the constraints and limitations of the technology.
  • Financial and Economic Analysis. It details the capital requirement to facilities, equipment and inventories.
  • Resources. It identifies all the resources needed to complete the project including the technical, inventory and human resources.
  • Process. It contains the project flow such as the flow charts showing project stages.
  • Teams and Management. It includes the organizational structure and team management teams. Provides the staffing structure of the proposed business.
  • Conclusion.  It contains other alternatives and compares these alternatives based on your goals. Outline the criteria for decision making.

 

Feasibility Study of a Commercial Warehouse in Angeles City

General Aspects

1.1    Description of the Project
The warehouse project is described and the findings on the market, technical and financial aspects of the study are summarized.

1.2    Project Timetable
A brief statement on when the warehouse will become operational together with a timetable of pre-operating activities is indicated

1.3    Management of the Warehouse
The organization and staffing of the warehouse company are defined and quantified.  Procedures for inventory account-ability, receiving and shipping of goods are established.

Product and Market Aspects

2.1    Product
The products to be warehoused and marketed are identified together with corresponding producers.  Brands of producers with warehousing facilities in the area are excluded.

2.2    Trade Area
The producers are interviewed to attain data on the volume of production and distribution of each product to the region.

2.3    Competition
Competitors, data on products warehoused and marketed sales volume, and pricing are identified.

2.4    Projected Sales
The total demand and market share for each product over a ten-year period are projected on the basis of the following:

2.4.1    Population growth
2.4.2    Consumption per capita as affected by income growth
2.4.3    Competition

2.5    Marketing and Selling Prices
The marketing arrangement and selling price for each product are defined over a ten-year period.

2.5.1    Immediate purchase of goods upon delivery from producers
2.5.2    Immediate sale of goods on commission basis
2.5.3    Storage and sale of goods upon orders from producers, fixed charges for storage and commission on sales.
2.5.4    Combination of the preceding marketing methods

Technical Aspects

3.1 Location Factors
After the geographic location of the warehouse has been selected, the specific site must be determined.  Some of the factors that may influence the choice are as follows:

3.1.1 Topography
The site must be free from floods.

3.1.2 Accessibility
The site must be as near as possible to transportation lines.

3.1.3 Cost of Land

3.1.4 Land Use
The site should be compatible with warehousing regulations.  Proximity to residential areas should be avoided.

3.1.5 Security
The site should not be in areas known for the incidence of theft and vandalism

3.1.6 Building Code
The requirements of the building code must be considered, particularly with regard to the restriction on the height of the building.

3.1.7 Advertising
The exposure of the building to heavily traveled high ways adds on advertising value to the state or site.

3.2 Size and Layout of the Building
The specific considerations on the size and layout of the warehouse are as follows:

3.2.1 The size of the building is related to the projected sales over a ten-year period in general and to the occupancy rate in particular.

3.2.2 The width-length on figuration of the building affects the construction cost per square meter of floor area as well as the handling and storage operations  In principle, for optimum combination of construction cost and operating efficiency, a warehouse should be nearly a square

3.2.3 Height will be limited by local building restrictions and the need for safe and practical handling equipment.  Height is also a convenient and relatively economical means of providing storage capacity.

3.2.4 Location of rail and dock should consider factors such as protection from the weather, security aspects, proximity to storage areas and loss of storage space.  Docks may be located outside, inside or partially inside/outside the warehouse.

3.3 Equipment
The types and number of equipment for handling storing and shipping operations are determined.

Financial Aspects

4.1 Project Cost
4.1.1  property, plant and equipment
4.1.2 organizational and operating expenses
4.1.3 working capital

4.2 Sources of Financing
4.2.1 capital stock
4.2.2 long term borrowing
4.2.3 short term borrowing

4.3 Financial Projections and Notes and Assumptions
4.3.1 cost of sales
4.3.2 operating expenses
4.3.3 income
4.3.4 cash flow
4.3.5 balance sheets
4.3.6 capital expenditures (organizational and pre-operating expenses, building, machinery and equipment, office furniture)

4.4 Financial Analysis
4.4.1 discounted  cash flow rate of return on total investment
4.4.2 financial ratios (return on sales gross profit rate, return on assets, etc.)
4.2.3 break-even analysis

Technical Aspect Feasibility Study for Snack Stand

The technical aspect helps to determine the capacity of the project.  The technical study will provide information in service activity and the raw materials to be used in providing activity this product as well as their resources.  It is also determine the utilities and equipment to be acquired in showing the location and layout of the project.

Objectives

1.    To know the business should be located.
2.    To find how to improve more in the business and also in the product.
3.    To know how to use properly the equipment and machinery.

Plant Lay out

The plant lay out show the size of a firm.  Lay out shows the different angel of the firm and the lay out is the guide for the worker who made a difficult firm.

Plant Location

The business will be situated at Common Terminal at Barangay Ibayo, Balanga City, Bataan beside the Isaac and Catalina medical center.  The common terminal is a very busy place where a great number of people come to go  The GF Snack Stand is situated on the second floor of the terminal.

The business was agreed to be situated at the said location because of its suitability for the targeted market.  Researchers suggested that the kind of business is very much profitable in the said place.  The partnership believes that the business can serve more customers in the area compared to other places.  The said location is very much accessible to students, employees, office workers, businessmen and common terminal passengers and also for those who are roaming around the three (3) malls.

Excerpt from Management Project by Arde R. Reyes

System Feasibility Study

In the field of computer and technology, there always an option to automate things likes payroll system, inventory system, lighting system, and sales system.  But of course, before the automation of any system, a feasibility study should be conducted in order to see the benefits of automation over manual system as well as other alternatives.

At first, you should study the organizational systems such as the users, policies, functions and objectives. Consider also the problems existing over the present systems like redundancies, inconsistencies and slow services. Also, know the constraints such as the nonfunctional requirement.

After analyzing the present or current system, possible alternatives should be presented.  Sticking to the current or present system is always an alternative. Different types of automation or computerization and business processes are considered to solve the existing problems. Advantages and disadvantages of each alternative should be discussed.

In addition, the computation of payback analysis, net present value analysis, and return on investment analysis should be included in your feasibility study.

If there is a feasibility study, the best alternative is to be preferred by the management because there a chance of comparing alternative. Feasibility study will determine the best solution to the problems.  After all, feasibility study is written to assess each alternative and come out of the best alternative that will benefit the intended users.

What to Include in your Feasibility Study

In starting a new business venture, it is important to conduct a feasibility study to ensure that your business will be successful.  Some things to be included are plan, cost, and sources of funding, manpower and personnel requirements, market and profitability.

In the plan section of your feasibility study, State clearly the objectives and description of the project. Duration to complete the project is also included. It is usually answers the questions what, why and how about the project.

Indicate the cost of equipment and facilities needed for the project.  The proponents should undertake reliable canvassing using at least two or three supplier and be particulars to models and capacities of equipment as well as the availability of materials.

Also, it is important if there is budget for the project.  If there is no sufficient budget for the project, a bank loan may be considered.  In this case, the loan amount and its interest must be factored into the financial documents of the study.  Realistic income targets from the venture should be projected.

As per personnel or manpower, it is important to determine the size and particulars of manpower as well as personnel’s job description, job titles and credential standards.  Also, salary rates and allowance should be noted.

In addition, the stability of the market determines the viability of the project.  A survey should be conducted to know if there are sufficient clients or customers and to whom the commercial venture will cater.

Of course, project should know if it is profitable. A ten or twenty percent return of investment (ROI) is usually regarded as profitable enough.

Vital Parts of Feasibility Study

A.    Summary of Project

  1. Name of Firm
  2. Location – head office and plant site
  3. Brief description of the product
  4. Highlights of major assumptions such as market projections, share and prices, investment costs, method of funding
  5. Summary of findings and conclusions on the following

a.    Market feasibility
b.    Technical feasibility
c.    Financial feasibility

B.    General Information – Describe the pre-operating period, during the operating period, labor, and professional firms or consultants to be hired, if any. Also, includes status of timetable of the project and other information such as pending litigations, information regarding intangibles, etc.

C.    Competitive position considering imported and/or substitute products.

D.    Marketing Program – description of the present marketing practices of competitors in the exports and domestic market. Projected export and proposed marketing program of the project.  It includes the contribution to the economy, plant layout, structure, raw materials, utilities, and waste disposal.

E.    Financial Feasibility – Total project cost, initial capital requirements, sources of financing, financial statements,  and financial analysis.

F.    Social Desirability – specific project contributions to the economy and society and social rate return.

Some Feasibility Study Mistakes

It is imperative to show your idea is feasible to attract investor and fund the project.  No matter what is your offering whether a product or service, you need to convince other people to finance your ideas.

I provide some feasibility mistakes which serve as guidelines to your feasibility study.

  • Doing feasibility study without doing research. It is a wasting of time and money without preliminary research on validity of the idea.   It is necessary to conduct initial research or pre-feasibility study before the start on of a full feasibility study.
  • Incorrect data interpretation.  Sometimes, the writer overestimates the market size as well as the opportunity for the new venture. For example, you will observe that the product has a large market place, but not realized the strengths of competitors and their customer’s loyalty.
  • Incorrect cost estimation. Make sure to detailed the cost to avoid over-estimation or under estimation.  Also, cost estimates should be studied carefully.
  • Overlook indirect competitors.  Make sure to investigate all products and services that deal to customers’ need.
  • Surveys dependence. Don’t over rely to survey because people tend to answer “yes” for new product but when it comes to purchasing, they say “no”.
  • Without expert Assistance.  It is important to get expert views regarding the product, idea or services.

What to include in your Technical Feasibility

Product

  • Description of product
  • Economic uses of the product

Manufacturing Process

  • Detailed Flow Chart of the Manufacturing Process including the material and energy requirement at each step and normal duration of the process
  • Other processes and factors considered to determine the process to be adopted
  • Processes used in existing plants and in similar projects

Plant Size and Production Schedule

  • Daily and annual production capacity of the plant
  • Days per year the project operate
  • Factors used in determining plant size
  • Expected attainable annual production volume for the next five years considering start-up and technical factors.

Machinery

  • Machinery layout such as the number of specifications, rated capacities of major machineries, prices of equipment, and balancing of capacities of each major and auxiliary equipment and standby units
  • Spare parts and repair service available
  • Quotations from suppliers, machinery guarantees, delivery, terms of payments and other arrangements

Plant Location and Layout

  • Location map of the plant
  • Plant Layout

Suggested Outline for Feasibility Study

One of the important steps in business development is a feasibility study.  Feasibility study is used to determine the potential for success of a proposed business venture.

The sample outline below can be used to help you make your study. However, not all feasibility studies are alike because it depends to the type of business venture analyzed and the market. The success of a feasibility study is based on the careful identification and evaluation of all of the important aspects for business success.

Description of the Project. Identify the list of product(s) or services(s) to be marketed and the general business model such as how the business will make money. Include the technical processes, size, location and kind of inputs. Also know the economic and social impact on local communities as well as environmental impact on the surrounding area.

Market Feasibility. Determine the industry description, industry competitiveness, market potential, sale projection and the access to market outlets.

Technical Feasibility. Find out the facility needs, suitability of production technology, availability and suitability of site, raw materials and others such as labor availability and qualified management personnel.

Financial Feasibility. Include the estimation of total capital requirements, equity and credit needs, budget expected costs and returns of various alternatives

Management Feasibility. Identify the business structure and business founders.

Conclusion. Include information that will be used for decision making whether to proceed the proposed business ventures.