Preparing Feasibility Study

Everyday we think to own our business but the problem is how to make sure that our business will become successful. By looking around your area and you will see what people needs. To prevent the waste of money and time, make sure to have a feasibility study to assess the viability of your business idea. Before spending money, feasibility study should be conducted in order to foresee if the business has a good chance of succeeding.

Business magazines and daily newspaper is a good source of business information. Also, yellow pages will give you an idea of a business already operating in your area. Also, seek business advice from others who are in the same industry. Getting information you need will find out
Some factors to consider when preparing feasibility study are the following:

  • demand and market
  • skills and talent needs by customer
  • capital needs and requirements
  • potential client or customer
  • management and operations
  • resources including facilities, equipment, staff, etc.
  • competition
  • market size
  • economic benefits

When you pass the feasibility test, you are now ready to the next step which is to business planning. Business planning will see the picture of the future. According to Wikipedia, business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

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Difference between Business Plan and Feasibility Study

Feasibility Study is written to determine if the business is feasible because it serves as analytical tool that includes scenarios for the decision-makers.  If they decided not to proceed with the business then there is no need to write a business plan. Business feasibility study determines if the business is profitable or not.

The business feasibility study is conducted during the deliberation phase of the project development cycle while business plan is the design for project implementation phase which presents the guideline for the project plan.

The feasibility study provides calculations, analysis and estimated financial projections as well as the description of the business and statements concerning competition and cash flow projection while the business plan contains plans and strategies to be implemented to grow the business. Just like feasibility study, business plan also provides detailed budgets, monthly and seasonal forecast, management details such as resumes of staff, background and competition. Also, business plan shows revenues expected, overheads and expenses as well as staffing levels with salaries along with employment cost, sales levels, setup costs, building and office costs, utility, telephone, legal, insurance, accounting, supplies cost and legal requirement cost. It also features sales and sales methodology and objectives.

To summary, business feasibility study determines if the business or project is viable because writing a feasibility study is an inexpensive way to safeguard against wastage of investment while business plan will help to maximize potential and minimize overheads.

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Steps in Conducting a Feasibility Study

Some entrepreneurs overlook the first step of the project cycle which is conducting a feasibility study. Knowing the importance of feasibility study can save companies time, investment, effort and embarrassment. The purpose of conducting a feasibility study is to determine the long term viability of the business.

feasibility study stepsThe first step is to examine the market. Examining the market involves a thorough analysis of the competitive landscape for the product or services to be offered. Some entrepreneurs often assume that their product or services to be offered are no competition but in reality they have to viewed customer that allocates time, money, resources as a competition.

Knowing and understanding the needs of the marketplace is not guarantee that you meet customer’s expectation and not mean that you will have a successful business venture. You should analyze the need of technology requirements including the resources to be used.

Another thing to be considered is the business strategy to reach the market as well as the business model. Business model analyze the value proposition, competitive strategy and revenue generation. You should have a scenario planning to guarantee the long term success. You should know whether business model will offers enough profit potential.

At last you should determine the financial projections, operating requirements, recommendation and findings.

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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.

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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.

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Sugar Mill Feasibility Study

Name of the Enterprise

This proposed sugar mill shall be called as Sweet Sugar Incorporated, obviously sugar is sweet and sweet is sugar. That’s why it shall be called as Sweet Sugar Incorporated.

Sweet Sugar Incorporated shall have its own plant located in Sitio Maguindong, Luakan, Dinalupihan, Bataan.

The site was chosen because its strategic location, where the supplies of public and private services are adequate and labor supply and raw materials are readily available.

Sources of Raw Materials

The plant shall have its own sugarcane plantation near the mill and the plantation shall be adequate in land area that will produce the needed raw material for sugar.

Availability of Transportation

The plant site is strategically located in Sitio Maguindong, Luakan, Dinalupihan, Bataan where transportation is not a problem. The plant is readily accessible to the workers. The finished sugar can be readily delivered to the market.

Project Long Range Objective

The Sweet Sugar Incorporated shall stick to its obligation and responsibility to its consumers of providing and producing the highest quality of sugar. No toxic materials shall be used or if there is, it should be properly disposed. It also respond to the needs of the barangay where it is located in order to help its progress.

The Sweet Sugar Incorporated shall be the number one product and supplier of high-grade sugar throughout Luzon and its neighboring provinces, and if expansion is needed, it shall be done without overlooking its primary objectives.

Mode of Financing

Financing shall come from the shares of the stockholders/owners of the Sweet Sugar Incorporated. If ever the shares can’t cover up the expenses of constructing the plant before its operation, the Sweet Sugar Incorporated shall apply for loans which will give the maximum output for the plant.

When business is already in operation, its liabilities and loans shall be paid from the sugar revenue

Market Study

As Bataan is situated geographically near the center of the Philippines, the finished product can be easily transported to the neighboring provinces in the country. Manila, the leading distribution center in the Philippines will be recipient of greater bulk of the product.

Analysis of Market Demand and Supply

Sugar is one of the primary commodities of the people, thus it is very important to have big supply that will cover up the big demand for sugar. The establishment of this sugar mill will greatly help our fellow Filipinos and most of all, our economy. This sugar mill will increase the sugar supply in the market, thus lessening our importation of sugar which is more expensive in cost.

Market and Marketing Strategy

Vigorous effort should be expanded to secure a market before a commitment is made to build a sugar mill if it would be most desirable to have the financial participation of one or more major users who can guarantee the purchase of substantial portion for the procedure production. During the past years, several overtures were made in this direction which revealed the opportunities existing.

Scale and Volume

The receiving of raw materials supply condition market potential and engineering should be considered. It would have production line which represent 769,434 tons per unit day. The output of the plant will depend on the production conditions.

Sugar Marketing Operation

The structure of general framework of market situation is already been said of the manner in which selling, shipping, financing and all other commercial aspect of marketing are out inside the general framework. These function rarely been described except by and for the specialist concerned with them. They are the essential link, however, providing the customers with that they want and the sugar industry with their income.

The successful selling of the product ultimately determine the prosperity of every one in industry if it is not sold successfully all the efforts of the farmers, millers and readiness with their employees and the most of business which supply and service them will suffer. The final customers are their most important millions of housewives buying sweets or soft drinks not only 4 lbs. of sugar and tin of golden syrup but also the tin of jam.

Market Distribution

Pricing

Pricing should follow the established market prices and practices which in turn are determined by the forces of demand and supply, however because of uncertainty of sugar during the start up period, some prices concessions should be made in order to break into market. A suggestion that is to 20% reduction from established market prices be affected on the first year output.

Consumer Surveys

Everyone is using sugar everyday, but assumed of sugar feeds are centrally as possible within the area of cane fields, as this will facilitate the transportation of cane with less rolling stock and other fixed charges for their department. Moreover, easy cane supply, so necessary for a economical grinding, will secure to the factory.

The direction of the prevailing wind and its accessibility to the factory and dwelling should be ascertained to avoid dust, ashes, smoke and odor of refuse going in wrong direction.

Healthy surroundings are paramount importance to the employees. Standing and deterioration water must not be allowed near the factory.

Technical Study

Services Offered:

The proposed plant site at Sitio Maguindong, Luakan, Dinalupihan, Bataan offers a plentiful supplies of water and power. The site offers adequate supply of water for growing sugarcane, and power for the production of sugar. It also offers adequate supply of laborers, which is considered more important than all the other factors, especially when skilled and unskilled laborers are required.

Labor

Skills required

The company will hire Filipino larorers in sugar cane manufacturing. Laborers near the company site and more preferable to the employees to insure promptness and can do overtime work when needed Another important reason is that people from nearest place can easily transport with their convenience since the company is small, the working force will be required from town itself or its vicinity. The company on the other hand will give assurance to the workers like a good working condition, facilities for a conductive maintenance of their health incentives and many other benefits required by the labor code, plus benefits given by the company itself.

The Project Site

Sitio Maguindong, Luakan, Dinalupihan, Bataan was chosen the best region of all sugar plantation in the Philippines due to its abundant supply of labor will not be difficult to achieve as most barrio folk are quite hardworking and industrious. Another reason is because of availability of raw materials and have favorable conditions. The plant would be erected near the national highway which will enable the transportation of finished product to the opposite provinces of course, sugar central will increase their yearly supply of sugar production thus helping the sugar industry.

The determination where sugar cane factory is to be located is purely an agricultural one. So far, it is referred t the tract of land which has to be adequate for growing sugar cane fr a period of years and the location where climate condition and rainfall are much that successful crops to be expected.

As Bataan is situated geographically near the center of the Philippines, the finished product can be easily transported to the neighboring provinces.

Waste Disposal

The various waste materials produced by industries maybe classified generally as solids, gaseous or liquid. Solid waste are directly related to a loud pollution gas liquid to air and water pollution, although all of them have combined and interrelated effects on pollution.

Methods of Waste Disposal

1. Eliminate of source. The first approach to a waste disposal problem requires a careful attention of the source of pollutants.
2. Recovery of waste products. Before deciding how to discard waste materials, the engineer should always think for recycle, reuse or for sale.
3. Regulate how to fit dilution
4. Divert waste to other points
5. Waste treatment. – A very expensive process the recent encountered by the major cities of the world due to smog problem and the question as due to how to dispose gaseous waste, electrostatic precipitators, aggrometrators, washers and many other kind of equipment have been used to remove atmospheric contaminants.

Disposal of solid waste materials on land is always a complicated problem, incineration and burying are possible solution and the best is by recycling.

A judicious plant design eliminates a potential hazardous operations should be separated from various plant facilities and sufficient protection is made, possible sources of fire by eliminating all the unnecessary ignition sources such as flame, spark or heated material, welding, smoking, static electricity and the spontaneous combustion of waste materials.

Chemicals can cause dangerous burns and accidents are bound to occur rotating sections of equipments should be amply protected to prevent accidents.

Management Study

For Pre-operating Period:

During the pre-operating period, the stockholders are responsible to deal with some government and private agencies to secure the necessary document and deal in financing institution for financial needs of the project. These persons are the one to negotiate for the constructor. The supplier of the materials and by the hired construction firm and the supervision will be integrated with the said contract. Consultant shall be hired also to ensure the safety of the plant and to supervise the installation of the equipment.

For Operating Period:

During the operating period, the stockholders handled the key position in the company. The business is organized and incorporate with their respective holdings:

Board of Directors

– Chairman of the Board
– Member
– Member
– Member
– Maintenance and Material Director
– Company Accountant
– Sales Director
– Production Director

The company sees to it that hired accountant and supervision directors are all licensed by the professional Regulation Commission (PRC) in their respective professions. All these persons should have at least an experience in their respective jobs.

The company accountant is responsible for the books and the preparation of the company book of accounts. He also prepares the payroll and he examines the financial status of the company.

The sales director will assists the selling and finding markets for the products.

The production director is responsible for the production in order to insure for good productivity and minimize production or manufacturing costs.

The maintenance and materials director is responsible for the safety programs and maintenance of the plant. He should set the guidelines and train workers about safety and accidents and be able to continue the flow of the product even machine breakdown occurs, which are hindrance to the company’s re-productivity programs.

Financial Study

Major Assumption

An industry like sugar mill requires a big capital. The stockholders shall provide the needed capital for the establishment of the whole business. Funds shall be given for the purchases of the necessary equipments and necessary materials for the construction of the building and for the purchase of land.

In case that there is no sufficient fund, the company shall apply for loan in the bank which gives the lowest interest. During operation, the company shall pay its obligation out its revenues.

Equipment cost less than P40,000,000.00. Building construction (payment for the labors included) costs more than P20,000,000.00. Land (for the plant site and sugar cane plantation costs P20,000,000.00. The stockholders shall produce a budget of not less than P80,000,000.00.

Socio-economic Study

Taxes and Restricting Law

Bataan offers the lowest tax rate for industries like sugar production, and the best of Bataan is, they offer, provide government subsidy and help to the industries located in its territory.

Provincial and town legislation are also important. The sweet sugar laws are more stringent in Bataan.

Sweet Sugar Incorporated will help boost the economic status of Dinalupihan, Bataan because it will provide a great number of jobs for the unemployed folks in the area, thus, giving them more opportunities in life.

Sweet Sugar Incorporated shall pay all its tax obligations on time.

This is a partial study of Engr. Eric Lanosa.

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Rules in Preparing a Good Project Feasibility Study

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.

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Some Questionnaire Guide in Feasibility Study Preparations

  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?

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Financial Study

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.

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Management Study

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

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