Posts tagged ‘Feasibility Study’

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.

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.

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.

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?

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.

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

Technical Study and Feasibility Study

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.

Writing a Feasibility Study

Feasibility study is a document written to show the justification of a proposed policy, product, service or other charges in an organization.

A project study has several chapters or division embracing several aspects related to proposed project.  A study presented must be financially, economically, technically and socially feasible or viable.

Rules in Preparing Study

  1. The writer must know the nature of the proposed project very well.  Get technical expertise if necessary from qualified expert.
  2. The study must be loaded with statistics, data, documents and all information to support the study.
  3. Organize the project study properly.
  4. The estimation and projections shows must be close to realities.

Characteristics of Feasibility Study

  1. It helps the managers and other decision makers vote for or against an idea or select many other alternatives.
  2. It is often preceded by a proposal.
  3. It helps the reader to make a decision.
  4. It saves time, capital and effort

Example / Sample of a Feasibility Study

Feasibility Study of Establishing Cindy’s Fast Food Branch Along Plaza of Balanga, Bataan

1. General Objectives

1.1. Description of the Business Project

The proposed business will need a two-storey building in a 2,000 square-meter lot with a parking space at the rear. The customer will drive in the left entrance greeted by the water-sprinkled Indian trees partly shielding the establishment from the fumes coming from the busy street. Embraced by the multi-colored lights, the trees will set the cosmopolitan setting to a rustic atmosphere. The building will be constructed to hide the stockroom complementing the architectural masterpiece. The smoothly cemented exit passing through the well-manicured lawn will draw sights of satisfaction from the customers.

The state-of-the-art tables, chairs and utensils will enhance the customers feeling that they are in a five-star hotel. Very affordable, the food will enthrall every customer to come and savor the food over the widely spaced tables on the immaculately marbled floor. The electronically flushing system of the restrooms will motivate the customers to force their friends and relatives to frequent this new Cindy’s Branch at the heart of the Balanga.

1.2. Project Time Table

All minor details considered, the project will start serving the five thousand targeted daily customers within five months. The contractors will complete the fence and the framework of the building in the first month. They will finish the walls and the floors in the second month. They will install the electrical and the air conditioning units in the third month. After the first and second layer coating, they will complete the final painting in the fourth month and finally they will landscape and plant balled-trees in the fifth month. As the project will be in progress, the company will busy the facilities to be used.

1.3. Management of the Business

With three managers alternately scheduled on the eight hour duty to man the 95crew in the 24 hour service, the business will surely satisfy the customers, propelling profit to soar.

The personnel will make a customer feel that he is the only one served amidst the queuing multitude. The high wage given by the company and, likewise, the humane treatment of the superiors will inspire the crew to render machine-precise service.

2. Product and Market Aspects

2.1 Market Outcome

A variety of expensive fireworks commence the business to attract the children, students, parents, and professionals. This opening blast will have been advertised a month before. The initial big crowd from the different districts of the province will keep growing to actualize the management’s vision that this Cindy Branch will be the most profitable among the food chains in the City.

2.2 Market and Selling Price

The customers can order from a variety of choices in the counter staffed with beautiful and handsome ever-smiling crew. The waiters will serve the orders in the well-crafted, smoke free dining areas with both oriental and western motifs to fit their number and their tastes. These areas will enhance customer privacy as the customers enjoy eating while talking about the gossips of the town, or as they engage in a highly intellectual calisthenics about a hot political issue. The area will also conduce lovers to cement their relationship with their soul-penetrating interlocked gazes that only lovers could fathom, as they savor their food.

3. Technical Aspect

3.1 Location Factor

At the center of Balanga Plaza, this food center will surely draw customers from the cross-section of society. The following factors will back-up the company’s foresight:

3.1.1 Topography

The 2,000 square-meter lot does not need labeling because the area is already flat and it is located in high location. No matter how strong the typhoon will be, the rains will not flood the area. The customers will not be drawn away from enjoying the services of Cindys.

3.1.2 Cost of Land

The fertile business venture will cheapen the current P20,000 per square meter piece of land. The forty five million peso worth of property will double after only three years of operation.

3.1.3 Security

The place will be safe. Secretly installed cameras will monitor every move to ensure the security of the customers. Four security guards simultaneously assigned to the area will guarantee the safety of the clients. This will be backed up by policemen assigned at the outpost nearby.

3.2 Size and Layout of the Building

To maximize the 40 x 50 meter land area, the engineers will erect the 20 x 30 meter proposed two storey building, leaving five meters at both sides and 18 meters fronting the street. Only two meters will be left at the back of the building. This will ventilate the establishment.

3.3 Equipment

The Bataan Builders will construct the building. This construction company will use modern building equipment like a cement mixer, caterpillar, automatic digging drill, and other state of the art construction materials.

4. Project Cost

4.1 The Land and the Building

This project will cost about P 45,000,000.00 which is roughly broken into the following:

Cost of 2,000 meter lot – P 40,000,000.00
Cost of 2 storey building – P 4,000,000.00
Accessories and Equipments – P 1,000,000.00

Total Cost – P 45,000,000.00

The 45 million pesos worth of land is the biggest of the capital investment but it is worth it because unlike the other expenses, the land value will appreciate through the years. The contract with the Bataan Builders for the proposed two-storey building is P 4,000,000. This includes materials and labor. With the five-month paying scheme, Cindy will pay P 800,000 every month until the last month. The food center will need P 1,000,000 for the imported accessories like tables, chairs and other needs.

4.2 Franchise

The food center will pay the current P 1,000,000 Cindy franchise.

4.3 Sources of Financing

The proprietor will put in P 5,000,000. The remaining P 40,000,000 will be borrowed from the bank.

5. Business Operation

5.1 Revenues

With 50 thousand monthly net income target from about five thousand daily customers, the proposed branch projects the following net income by month and years:

First month – P 1,500,000.00
First year – P 18,000,000.00
Second year – P 36,000,000.00
Third year – P 54,000,000.00
Fourth year – P 72,000,000.00

After four years of operation, this venture will have gained P 11,000,000 as shown in the following computations:

Net income in four years – P 72,000,000.00
Minus the sum of investments – P 61,000,000.00
Difference – P 11,000,000.00

Loaned money from the bank – P 42,500,000.00
Interest of loaned money – P 17,000,000.00
Franchise – P 1,000,000.00
Maintenance – P 500,000.00
Total – P 61,000,000.00

5.2 Accessories and Equipments

Being of high quality, the accessories will still be usable after four years. However, P 500,000 pesos is allotted for maintenance and replacements of damaged property.

Summary

The figures above prove how financially rewarding this business venture. Because food is a necessity, a venture like this guarantees 99% success. This is especially so if the location is the Plaza like Cindys Plaza.

* The feasibility study is a result of the proposed Establishment Cindy’s Fast Food.