Category: Feasibility Study

Vital Parts of Feasibility Study

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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

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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

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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

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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.

Rules in Preparing a Good Project Feasibility Study

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A project study or feasibility study contains several chapters.  The proposed project must be financially, economically, technically and socially feasible.

A consultant or researcher must possess not only the technical expertise on the project involved, but also the right analytical, interpretative and writing skills to be able to produce the desired studies.  He must know all banking, institutional, and governmental rules and regulations on the particular projects he is to work on.

Rules in Preparing a Good Project Feasibility Study

  1. Know the nature of the proposed project well. If you are not familiar with the topic or project, you must obtain the technical expertise from qualified experts to help you in researching the basic required technology and other sensitive aspects of the project.
  2. Research well. Explore all resource related to your study.  Your project study must be included with statistics, data documents, and all information needed from all available resources.
  3. Must be a good analyst. You must know how to analyze, evaluate, interpret, use and discard unnecessary data.
  4. Data must be accurate. Your estimates and projections must be close to realities.  Avoid making guesses and statistical improbabilities.
  5. Organize study. You must know how to put in order your study.
  6. Write it well. You must know how to write it properly.

Sample of Management Study

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Excerpt from the proposed telephone industry business.

Management study includes the planning, organizing, staffing and directing of the project.  Also it includes the external activities in starting the business.  The means and procedure are undertaken before the operation of the business.  The form of management is indicated identifying each of management and each personnel.  The role and duties of each personnel is clearly defined, as well as practice and develop skills learned from this project

Management Analysis

Our business covers a system of services that can be determined in large scales.  A corporation owns the ETHECOM.  This kind of business has a very large management.  The management and operation of the business are determined and constructed by the joint-forces and capabilities of the corporate members and staffs.

Organization Chart

ETHELCOM provides its organizational line chart, compose of personnel deployed within the business.


Registration of business

The registration of business is an act that is provided by the constitution.  It is very important and must be implemented in order for the business to be legal and to perform well and freely.

The following are the steps for registering a business in the Philippines.

  1. Prepare the article of partnership/corporation.
  2. Registration of the business name with the Bureau of Domestic Trade and Industry.
  3. Apply the registration of the partnership with the Securities and Exchange Commission.
  4. Get the necessary permit from the office of the mayor and license to operate from the treasure of the city of municipality where the business will be located.
  5. Secure a tax identification from the Bureau of Internal Revenue and a file VAT or Not-VAT permit.

Hiring Personnel

The following are the qualification for the interested job seekers.

Electronics and Communication Engineer
–    Preferably Male, 22-30 yrs. old
–    Licensed
–    At least 5 years of experience

Technician
–    Preferably Male, 22-30 yrs. Old
–    BSECE or Electronics/ Electrical graduate
–    At least 3 years of experience in the related field

Sales
–    Male or Female, 21-30 yrs. old
–    High School Graduate
–    With pleasing personality

Job Description and Responsibilities

President
–    Responsible in making final decision for every undertaking the business may encounter.
–    Administer over all activities and for sees projects, forecast, and solve problems.

Manager (Stockholders)
–    To assist the President and his duties and responsibilities.
–    Must be responsible in assigning different task of each personnel.
–    Responsible for preparing financial statement of the business.

Purchasing Personnel
–    Responsible for good quality of purchased products
–    Responsible for purchasing low cost of product
–    Responsible for scheduling of purchased product

Technicians
–    Responsible for repairing, servicing and installation

Sales Personnel
–    Responsible for the sales of product, operational reliability of services and provides customer care.

Some Questionnaire Guide in Feasibility Study Preparations

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  1. What is the name of the firm?
  2. Where is the location of head office and plant site?
  3. Give a brief description of the project.
  4. What are the assumptions being made including market projections, share and prices, investment costs, and method of financing?
  5. Mention the summary of findings and conclusions regarding the market feasibility, technical feasibility and financial feasibility.
  6. How shall the project be managed during the pre-operating period such as the firms or persons involved or to be involved in studying the different aspects of the project?
  7. How shall the project be managed during the operating period including the type of business organization, organizational chart and function of each unit management personnel, duties and time to be devoted to the project, qualification and compensation?
  8. What skills and corresponding numbers of labor are required such as qualifications, recruitment and training program, compensation, fringe benefits and facilities?
  9. Include the time table of the project.
  10. Indicate the annual volume of the domestic demand for the past 10 year?
  11. Who are the major consumers of the product?
  12. What is the projected annual volume of the domestic demand for the next 5 years? Also indicate the method used and factors considered in preparing the projection.
  13. Who are the current and potential buyers of the product and where are they located?
  14. What is the annual volume of the domestic supply for the past 10 years?
  15. Who are the major producers of the product?
  16. What are the prevailing prices of the product?
  17. What are the present marketing strategies and practices of competitors?
  18. What shall be adopted in the project as to the selling organization, terms of sales, channels of distribution, location of the sales outlets, transportation and storing facilities?

Financial Study

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It is important if the proposed project is financially feasible, meaning the project cost is afford by the board or the company.  Also, it involves the thorough coverage of all the monetary information.  It covers the detailed information on the total project cost, initial capital requirements, sources of financing, financial statements and financial analysis.

The profitability level of the project is also defined such as the net income after taxes to the total investment. The identification of sources of financing is an essential element of feasibility study including the currency, security, repayment period, interest, and other features.

In addition, the financial health of the business is also assessed in the financial statements as well as the analysis showing the income, cash flow and balance sheets.  Other information such as break-even outputs, sales and prices, amount of sales required to earn a certain amount of profit and the cash payback period are also provided.

Management Study

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Management study involves the appropriate business organization such as the people who will be in-charge both before and after the operating periods of the enterprise as well as the function.

Factors to be determined in management study:

  • pointing out the firms or personnel who will be involved in the operation of the project or enterprise
  • type of business organization
  • organizational chart
  • functions of each unit management personnel
  • skills and numbers of labor required as well the duties and time to be devoted in the project
  • qualifications, compensations, and fringe benefits of the personnel involved
  • facilities to be used
  • recruitment and training programs of the personnel
  • status and timetable of the project

Technical Study and Feasibility Study

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One of the major components of a project feasibility study is technical study.  In case of product proposal, a technical study identifies whether the product could be produced at the highest possible quality level with minimum cost.

Factors to be considered in technical study

  1. Composition of the product such as physical, mechanical and chemical properties should be described.
  2. Manufacturing process include detail flow charts which indicate the material and energy requirement at each step and normal duration of the process.
  3. Plant size and production schedule includes the production capacity of the plant and number of days the project shall operate per year and expected attainable yearly production.
  4. Machinery.  The number specification, rated capacities, prices of equipment and auxiliary equipment should be considered.  Also, the availability of spare parts and repair services such as quotation from supplier, machinery guarantees, delivery, and terms of payment are other factors to be studied.
  5. Plant location, layout and structure.  The location must be desirable in terms of distance to source of raw materials and markets.
  6. Raw materials.  The availability, combination, current and prospective sources and costs of raw materials should be determined.
  7. Utilities and waste disposal.  Here, it includes the specific utilities such as electricity, fuel, water, supplies and their respective uses, and quantity required.