Feasibility Study

Preparation of Feasibility Reports: Selection of factory location, Economic, Technical, Financial and Managerial Feasibility of Project.
Submitted To: Ms. Niyati Chaudhary (Asst. Professor) 2/19/14
Submitted y: A!"it Cha#$a 1211%1&&&' M A 2!d (ear

Contents

What is a Feasibility St dy!

"s the name implies, a feasibility st dy is an analysis of the #iability of an idea. The feasibility st dy foc ses on helping ans$er the essential % estion of &sho ld $e proceed $ith the proposed project idea!' "ll acti#ities of the st dy are directed to$ard helping ans$er this % estion. Feasibility st dies can be sed in many $ays b t primarily foc s on proposed b siness #ent res. Farmers and others $ith a b siness idea sho ld cond ct a feasibility st dy to determine the #iability of their idea before proceeding $ith the de#elopment of a b siness. (etermining early that a b siness idea $ill not $or) sa#es time, money and heartache later. " feasible b siness #ent re is one $here the b siness $ill generate ade% ate cash*flo$ and profits, $ithstand the ris)s it $ill enco nter, remain #iable in the long*term and meet the goals of the fo nders. The #ent re can be either a start* p b siness, the p rchase of an e+isting b siness, an e+pansion of c rrent b siness operations or a ne$ enterprise for an e+isting b siness. Feasibility St dy , tline is pro#ided to gi#e yo g idance on ho$ to proceed $ith the st dy and $hat to incl de. -o$ to .se and When to (o a Feasibility St dy $ill help yo thro gh the process and help yo get the most o t of yo r st dy. " feasibility st dy is only one step in the b siness idea assessment and b siness de#elopment process. Definition:
1. /y 0ahle Wolfe: &" feasibility st dy loo)s at the #iability of an idea $ith an emphasis on

identifying potential problems and attempts to ans$er one main % estion: Will the idea $or) and sho ld yo proceed $ith it!'
2. &Feasibility St dy is basically a st dy that is done to j dge the #iability of a ne$ b siness

#ent re. 1t is act ally a preliminary analysis of a project that lets the people )no$ that $hether to proceed $ith a project or not.'

,bjecti#es of a Feasibility St dy

Market Demographics ,ne objecti#e of a feasibility st dy is to determine if there2s a large eno gh mar)et to s pport yo r potential b siness. Researchers gather information abo t mar)et si3e thro gh can#assing and telemar)eting. ,ffering a free sample of yo r potential prod ct can also help ga ge interest le#els. " feasibility st dy also e+amines the demographics of yo r potential mar)et4 information s ch as the potential b yers2 a#erage age, income and marital stat s can help $ith mar)eting in the later stages of b siness de#elopment. Competitiveness 1t2s important to )no$ ho$ competiti#e yo r b siness can be in the mar)et. " feasibility st dy e+amines already*established b sinesses to determine $hether the mar)et is sat rated or $ide open. 1f there is a high demand for yo r prod ct and only a fe$ b sinesses selling it, the chances if yo r s ccess are relati#ely high. 1f yo r mar)et is sat rated $ith large and s ccessf l companies controlling a great deal of reso rces and s pported by large client bases, it2s li)ely that yo r b siness $ill need more time before it becomes tr ly profitable. Investment " feasibility st dy ans$ers preliminary % estions abo t initial in#estments. -o$ m ch money $ill yo need before yo r b siness is operational! -o$ m ch time before yo r b siness become financially independent and sol#ent! " feasibility st dy ma)es some initial projections based on mar)et si3e and demographics4 these projections ser#e as a baseline for potential in#estors as they e+amine the potential ris)s and re$ards of in#esting in yo r b siness. Returns Most important to in#estors are yo r ret rns projections. Ret rns incl de financial profits and other concrete benefits s ch as c stomer base, property, stoc)s and other assets that yo r b siness $ill ac% ire o#er time. Ret rns can also refer to yo r b siness2s credit$orthiness and o#erall financial stability. The financial projection yo r feasibility st dy pro#ides $ill gi#e yo , yo r b siness partners and yo r financial bac)ers an informed, if spec lati#e, #ie$ of $hat the f t re may hold. Cash Flow Estimate the costs of r nning yo r day*to*day operations. "dd in the b dget from any planned e+pansions to find the total amo nt of f nding yo need to stay afloat. 5ash flo$ feasibility st dies are often re% ested by lenders or in#estors to e#al ate the ris) le#el of the b siness. 1f yo r company is j st starting o t, yo r feasibility st dy sho ld predict the amo nt of time ntil the company brea)s e#en. 5onsider possible negati#e o tcomes to determine the effect on yo r timeline, s ch as a decline in the c rrent c stomer base. Market Research /efore la nching a ne$ prod ct or ser#ice, r n a feasibility st dy on the si3e and demographics of the mar)et to determine its potential. "naly3e e+isting competitors to see if yo r company $ill be able to brea) into the mar)et. Sat rated mar)ets are not al$ays bad. -a#ing se#eral established competitors indicates that there is money to be made in that ind stry. -o$e#er, yo r feasibility st dy may re#eal that yo r company does not ha#e the

reso rces to compete, so yo narro$ yo r foc s to a smaller niche mar)et instead. 1n this case, the feasibility st dy stopped yo from ma)ing a costly mista)e and crippling yo r prod ct before it became established. Income Projections Feasibility st dies can be sed to determine $hether a proposed project $ill be profitable. .se conser#ati#e estimates nless yo ha#e significant e#idence the project $ill e+ceed them. 0oo) at ind stry gro$th to ma)e s re yo r estimates are reasonable for the c rrent mar)et conditions. 5onsider all costs in#ol#ed in the project, incl ding labo r, capital e+pendit res and ra$ materials needed for prod ction.

Expansion Possi ilities E+panding facilities, mergers and ac% isitions, adding a ne$ prod ct line or entering ne$ mar)ets are also good reasons to cond ct a feasibility st dy. 5onsider c lt ral iss es if yo are e+panding into a different co ntry. "n ad#ertising campaign that is perfectly innocent in one co ntry co ld be considered offensi#e $hen translated to a foreign lang age. 1ncl de logistical iss es s ch as physical space, constr ction costs and hiring additional staff. "ssess the legal and financial considerations of the project, s ch as 3oning la$s and license re% irements.

The Elements of a 6ood Feasibility St dy

1n its simplest form, a Feasibility St dy represents a definition of a problem or opport nity to be st died, an analysis of the c rrent mode of operation, a definition of re% irements, an e#al ation of alternati#es, and an agreed pon co rse of action. "s s ch, the acti#ities for preparing a Feasibility St dy are generic in nat re and can be applied to any type of project, be it for systems and soft$are de#elopment, ma)ing an ac% isition, or any other project. There are basically si+ parts to any effecti#e Feasibility St dy:
1. Project !cope: The project scope $hich is sed to define the b siness problem and7or

opport nity to be addressed. The old adage, 8The problem $ell stated is half sol#ed,8 is #ery apropos. The Scope sho ld be definiti#e and to the point4 rambling narrati#e ser#es no p rpose and can act ally conf se project participants. 1t is also necessary to define the parts of the b siness affected either directly or indirectly, incl ding project participants and end* ser areas affected by the project. The project sponsor sho ld be identified, partic larly if he7she is footing the bill.
2. Current "nal#sis: The c rrent analysis is sed to define and nderstand the c rrent

method of implementation, s ch as a system, a prod ct, etc. From this analysis, it is not ncommon to disco#er there is act ally nothing $rong $ith the c rrent system or prod ct other than some mis nderstandings regarding it or perhaps it needs some simple modifications as opposed to a major o#erha l. "lso, the strengths and

$ea)nesses of the c rrent approach are identified 9pros and cons:. 1n addition, there may #ery $ell be elements of the c rrent system or prod ct that may be sed in its s ccessor th s sa#ing time and money later on. Witho t s ch analysis, this may ne#er be disco#ered.
%. Re$uirements * ho$ re% irements are defined depends on the object of the project2s

attention. For e+ample, ho$ re% irements are specified for a prod ct are s bstantially different than re% irements for an edifice, a bridge, or an information system. Each e+hibits totally different properties and, as s ch, are defined differently. -o$ yo define re% irements for soft$are is also s bstantially different than ho$ yo define them for systems.
4. "pproach: 1t represents the recommended sol tion or co rse of action to satisfy the

re% irements. -ere, #ario s alternati#es are considered along $ith an e+planation as to $hy the preferred sol tion $as selected. 1n terms of design related projects, it is here $here $hole ro gh designs 9e.g., 8renderings8: are de#eloped in order to determine #iability. 1t is also at this point $here the se of e+isting str ct res and commercial alternati#es are considered 9e.g., 8b ild #ers s b y8 decisions:.
). Evaluation: 1t e+amines the cost effecti#eness of the "pproach selected. This begins

$ith an analysis of the estimated total cost of the project. 1n addition to the recommended sol tion, other alternati#es are estimated in order to offer an economic comparison. For de#elopment projects, an estimate of labo r and o t*of*poc)et e+penses is assembled along $ith a project sched le sho$ing the project path and start*and*end dates.
*.

Review * all of the preceding elements are then assembled into a Feasibility St dy and a formal re#ie$ is cond cted $ith all parties in#ol#ed. The re#ie$ ser#es t$o p rposes: to s bstantiate the thoro ghness and acc racy of the Feasibility St dy, and to ma)e a project decision4 either appro#e it, reject it, or as) that it be re#ised before ma)ing a final decision. 1f appro#ed, it is #ery important that all parties sign the doc ment $hich e+presses their acceptance and commitment to it4 it may be a seemingly small gest re, b t signat res carry a lot of $eight later on as the project progresses. 1f the Feasibility St dy is rejected, the reasons for its rejection sho ld be e+plained and attached to the doc ment.

1t sho ld be remembered that a Feasibility St dy is more of a $ay of thin)ing as opposed to a b rea cratic process. For e+ample, $hat 1 ha#e j st described is essentially the same process $e all follo$ $hen p rchasing an a tomobile or a home. "s the scope of the project gro$s, it becomes more important to doc ment the Feasibility St dy partic larly if large amo nts of money are in#ol#ed and7or the criticality of deli#ery. ;ot only sho ld the Feasibility St dy contain s fficient detail to carry on to the ne+t s cceeding phase in the project, b t it sho ld also be sed for comparati#e analysis $hen preparing the final Project " dit $hich analyses $hat $as deli#ered #ers s $hat $as proposed in the Feasibility St dy. Feasibility St dies represent a common sense approach to planning. Fran)ly, it is j st plain good b siness to cond ct them. -o$e#er, 1 ha#e read $here some people in the 1.T. field, s ch as the 8"gile8 methodology proponents, consider Feasibility St dies to be a colossal $aste of time. 1f this is tr e, 12#e got a good sed car 1 $ant to sell them.

"spects in Feasibility St dy
Whether yo se the already p blished project reports or $ish to start afresh, yo need to e+amine all the facets of the feasibility of the proposed project idea, #i3., mar)eting, and technical, financial, economic and legal.

M"R<ET ";"0=S1S
" mar)et, $hether a place or not, is the arena for interaction among b yers and sellers. From seller>s point of #ie$, mar)et analysis is primarily concerned $ith the aggregate demand of the proposed prod ct7ser#ice in f t re and the mar)et share e+pected to be capt red. S ccess of the proposed project clearly hinges on the contin ing s pport of the c stomers. -o$e#er, it is #ery diffic lt to identify the mar)et for one>s prod ct7ser#ice. "fter all, the $hole ni#erse cannot be yo r mar)et. =o ha#e to caref lly segment the mar)et according to some criteria s ch as geographic scope, demographic and psychological profile of the potential c stomers etc. 1t is a st dy of )no$ing $ho all comprise yo r c stomers, for this yo re% ire information on:

5ons mption trends. Past and present s pply position Prod ction possibilities and constraints 1mports and E+ports 5ompetition 5ost str ct re Elasticity of demand 5ons mer beha#io r, intentions, moti#ations, attit des, preferences and re% irements (istrib tion channels and mar)eting policies in se "dministrati#e, technical and legal constraints impinging on the mar)eting of the prod ct.

F1;";51"0 ";"0=S1S
The objecti#e of financial analysis is to ascertain $hether the proposed project $ill be financially #iable in the sense of being able to meet the b rden of ser#icing debt and $hether the proposed project $ill satisfy the ret rn e+pectations of those $ho pro#ide the capital. While cond cting a financial appraisal certain aspects has to be loo)ed into li)e: 1n#estment o tlay and cost of project Means of financing Projected profitability /rea)* e#en point 5ash flo$s of the project 1n#estment $orthiness j dged in terms of #ario s criteria of merit Projected financial position

TE5-;15"0 ";"0=S1S

The iss es in#ol#ed in the assessment of technical analysis of the proposed project may be classified into those pertaining to inp ts, thro ghp ts and o tp ts. 1np t "nalysis: 1np t analysis is mainly concerned $ith the identification, % antification and e#al ation of project inp ts, that is, machinery and ?@ materials. =o ha#e to ens re that the right )ind and % ality of inp ts $o ld be a#ailable at the right time and cost thro gho t the life of the project. =o ha#e to enter into long*term contracts $ith the potential s ppliers4 in many cases yo ha#e to c lti#ate yo r s pply so rces. When Macdonald entered 1ndia, they de#eloped s stainable so rces of s pply of potatoes, lett ce and other ingredients for their b rgers. The acti#ities in#ol#ed in de#eloping and retaining s pply so rces are referred to as s pply chain management. Thro ghp t "nalysis: 1t refers to the prod ction7operations that yo $o ld perform on the inp ts to add #al e. .s ally, the inp ts recei#ed $o ld ndergo a process of transformation in se#eral stages of man fact re. Where to locate the facility, $hat $o ld be the se% ence, $hat $o ld be the layo t, $hat $o ld be the % ality control meas res, etc. are the iss es that yo $o ld learn in greater details in s bse% ent lessons. , tp t "nalysis: this in#ol#es prod ct specification in terms of physical feat res* colo r, $eight, length, breadth, height4 f nctional feat res4 chemical material properties4 as $ell as standards to be complied $ith s ch as /1S, 1S1, and 1S, etc.

E5,;,M15 ";"0=S1S
Economics is the st dy of costs* and* benefits. 1n regard to the feasibility of the st dy the entreprene r is concerned $hether the capital cost as $ell as the cost of the prod ct is j stifiable #is*A*#is the price at $hich it $ill sell at the mar)et place. For e+ample, technically, sil#er can be e+tracted from sil#er bromide, 9a chemical sed for processing the B*ray and photo films:4 b t, the cost of e+traction is so high that it $o ld not be economically feasible to do so. 0i)e$ise, ntil recently cost of harnessing solar po$er $as prohibiti#ely high. This cost*benefit analysis goes into financial calc lations for profitability analysis that $e disc ssed nder financial analysis. "t this stage it is also sef l to disting ish bet$een the economic and commercial feasibility4 $hereas economic feasibility leads one to the nit cost of the prod ct, commercial feasibility informs $hether eno gh nits $o ld sell. "part from the cost*benefit analysis as abo#e, $hich $e also refer to as pri#ate cost benefit analysis, it is also sef l to do $hat is )no$n as social* cost*benefit* analysis 9S5/":. For e+ample, the entreprene r may be getting s bsidi3ed electricity in $hich case pri#ate cost $o ld be less than social cost. 0i)e$ise, e+porting nits earn precio s foreign e+change res lting into social benefits being more than pri#ate earnings. Many a time, a project that is $orthy on S5/" may find greater fa#o r $ith the s pport agencies.

E5,0,615"0 ";"0=S1S
1n recent years, en#ironmental concerns ha#e ass med a great deal of significance especially for projects, $hich ha#e significant ecological implications li)e po$er plants and irrigation schemes, and for en#ironment poll ting ind stries 9li)e b l) dr gs, chemicals and leather processing:. The concerns that are s ally addressed incl de the follo$ing: What is the li)ely damage ca sed by the project to the en#ironment!

What is the cost of restoration meas res re% ired to ens re that the damage to the en#ironment is contained $ithin acceptable limits!

0E6"0 ";( "(M1;1STR"T1CE

Thin) of the plight of the entreprene r $ho $or)ed on the idea of a la ndry to cater to hotels and hospitals, finds it eminently feasible only to learn s bse% ently that Dla ndry> does not fig re as an ind stry $ithin the administrati#e definition of SS1 as applicable on that date. "nother entreprene r in <alyani 9West /engal: de#eloped an "y r#edic preparation only to find that the office of (15 did not ha#e an e+pert to #alidate the project4 the prod ct had to be mar)eted as a confectionary itemE What is implied from these e+amples is that the entreprene r has to be s re also of the administrati#e and legal iss es in#ol#ed in the project. These incl de, choice of the form of b siness organisation, registration and clearances and appro#als from the di#erse a thorities.

Forms of %rganisation !ole Proprietor: "t the time of start p the entreprene r s ally has to handle all f nctional responsibilities of the #ent re and handles prod ction, mar)eting, personnel, finance himself. "s a res lt the #ast majority of ne$ b sinesses start as sole proprietors. This form has the added merit of being free from formalities regarding incorporation or maintenance of acco nts or a diting etc. Partnership: "s the b siness gro$s the re% irements for f nds and management $ill also increase $hich might lead him to enter into partnership $ith one or more persons. 1t is al$ays preferable to ha#e a $ritten agreement in the form of a partnership deed $hich clearly indicates the names and addresses of the partners, their ages, contrib tion to capital, profit sharing ratio etc. This form also ma)es for pooling of s)ills and responsibilities and spread of ris). Compan#: " company can be a pri#ate limited company, in $hich case it can ha#e a minim m of F and a ma+im m of GH members. 1t can be a p blic limited company, $hich has to ha#e a minim m of @ members, and there is no ma+im m limit. This form of organisation pro#ides #ast amo nts of capital as they, nli)e the pri#ate limited company, in#ite the general p blic to s bscribe to its shares and also pro#ide limited liability. The 5ompanies "ct of IJG? go#erns the companies. Co&operative: " co*operati#e is an enterprise o$ned and controlled by people $or)ing in it. 6enerally they are formed for some specific p rpose li)e a ho sing cooperati#e society. Clearances an' "pprovals: Setting p of an ind strial nit re% ires the entreprene r to obtain a n mber of clearances and appro#als regarding land se, poll tion control and safety. 1n this regard, yo $o ld be re% ired to interact $ith the local go#ernment a thorities s ch as the m nicipalities7 #illage panchayats and state poll tion control boards. 1n case, yo $ish to a#ail the incenti#es accr ing to the firms registered nder E+port Processing Kone7Special Economic Kone 9SEK:, Soft$are Technology Par) 9STP:, or IHHL E+port ,riented .nit yo $o ld be re% ired to register as s ch. /esides, certain prod cts may re% ire specific clearances from the rele#ant departments7a thorities. /o+ entitled DProd ct*Specific 5learances> ill strates a fe$ e+amples of the necessary clearances and appro#als #is*A*#is specific prod cts.

Essentials of Feasibility St dy
The feasibility st dy m st contain se#eral )ey elements, namely:

The idea of the project: The nat re of the project is determined in this step, $hether 9ind strial M ser#ices M trade etc.:. " simplified concept of the project is gi#en and the en#ironment it is intended for. The need for the project: 1n this item the most important reasons for initiating this project. This item sho ld be s pported $ith statistics s ch as the n mber of similar projects in the area. /asic ra$ materials for the project: There sho ld be mention of the basic ra$ materials needed for the project, and $here can it be p rchased from. Prod cts: The prod cts or ser#ices made or pro#ided by the project m st be mentioned. Stages of Man fact re: " detailed e+planation of ho$ the man fact re of any prod ct $ill be done. Ta)ing into acco nt the balance of ra$ materials in#ol#ed in man fact ring, and the % antities re% ired for prod ction. Space and location: " description of the site $here the project is located and the re% ired space and the e% ipment for its establishment. Ser#ice re% irements of the project: This sho$s the needs of the project in terms of ser#ices s ch as $ater 9s% are meters:, electricity 9)ilo$atts per ho r:, telephone and f el 9liters:, it sho ld be calc lated and estimated in the form of money each month. Machinery and e% ipment: The description of each machine or e% ipment needed for the project and po$er sed for each 9)ilo$atts: and $hether the e% ipment is going to be domestic or imported. What spare parts re% ired for them and the price of the machines. Ra$ materials needed for the project: The detailed description of each piece that goes into prod ction, and pac)aging and the amo nt sed, $hether by $eight or by the n mber of pieces. Employment: " description of the type of employment re% ired for the project. " description of the job d ties, job titles and $ages m st be stated. Wor)ing ho rs: Whether it is a one shift 9N ho rs: or t$o 9I? ho rs: or three 9FO ho rs:. Prod cts: To be described, named and determined by the % antity as $ell as specifying the price of each item. Pac)aging: The % ality of materials sed sho ld be determined in pac)aging, $ith the addition of a poster sho$ing all prod ct data 9prod ct name and logos, if any:. "lso, the name of the prod cer, address and the name of the nat ral ingredients, additions and date of prod ction and shelf*life sho ld be on the pac)aging.

P ality: P ality elements sho ld be prepared for the project>s prod cts. /eginning $ith cleanliness of premises to the health of the employees depending on the type of the project. Mar)eting: To disclose intended mar)eting schemes s ch as participating in #ario s e+hibitions or ta)ing the $holesale approach. Financial and economic st dy: ,ne sho ld prepare a b dget for in#estment costs. 1n#estment costs are split bet$een direct costs and indirect costs. (irect costs are the ra$ materials, intermediate ra$ materials, $ages and salaries. 1ndirect costs are electricity, f el, maintenance, spare parts, mar)eting e+penses, rental of premises and ins rance on the b ildings. "lso, the #al e of ann al depreciation is considered as indirect costs and is calc lated as follo$s: GL depreciation on b ildings and installations4 IHL on machinery4 IHL on fi+t res, fittings and f rnit re4 FHL on transportation4 IHL on establishment and testing4 and IHL as an emergency reser#e.

From the abo#e, it is fo nd that the fi+ed capital is: land * b ildings and facilities * machinery and e% ipment * e% ipment, fi+t res, fittings and f rnit re * means of transportation * establishment and testing costs M and the emergency reser#e:. The $or)ing capital on the other hand is: ra$ materials and intermediate ra$ materials * $ages and salaries * electricity and f el * and maintenance and spare parts * mar)eting e+penses * rent of b ildings * sec ring b ildings and e% ipment. "nd it is lin)ed to capital cycle 9monthly * bi*monthly etc.:. "nn al profits are calc lated as follo$s: Total ann al sales 7 Total direct and indirect cost.

Report /ody Format

Each page of the report body sho ld ha#e a header that contains an abbre#iated title for the report, yo r last name, and a page n mber fl sh right. 1ndicate organi3ational str ct re $ithin yo r report by sing headings and s bheadings. Ma)e s re that headings at the same le#el are $ritten in parallel form. "lso, ma)e s re that headings at the same le#el are consistently placed on the page 9i.e., centred, fl sh left, indented, etc.:. 1f yo se nderlining, italics, or boldface to indicate heading le#el, ma)e s re yo se it consistently. The body of yo r report is do ble*spaced pages sing a professional loo)ing font, IH to IF point. 1f so rces are cons lted, yo $ill need to cite all yo r so rces sing a citation style that is appropriate for yo r field 9e.g., "P", 5/E, etc.:.

5ontent of Feasibility Report

The body of yo r report sho ld incl de information from the follo$ing o tline: Intro'uction(Executive !ummar#

(escribe the problem7opport nity yo are fi+ing $ith yo r proposed plan State yo r main point of the report State the importance of yo r plan to yo r a dience 6i#e an bac)gro nd information yo r a dience may need abo t the s bject

)ackgroun'

(escribe yo r proposed plan in s fficient detail State if it $or)ed else$here and ho$ it $as implemented

Metho'olog# * metho' of anal#sis

(isc ss yo r method of analysis for yo r feasibility st dy

%verview of "lternatives +if an#,

State any alternati#e proposals and their important feat res

Cost - )enefit Evaluation

(emonstrate ho$ this proposal is feasible (isc ss technological feasibility, economic practicality, social desirability, and ecological so ndness

Conclusions

(isc ss the concl sions yo ha#e dra$n from yo r feasibility analysis and if it $ill $or)

Recommen'ations

Ma)e recommendations based on yo r concl sions.

Feasibility St dy Process
" Feasibility St dy sho ld nderta)e the follo$ing acti#ities:

The Feasibility St dies Process

Step I: Re#ie$ of Master Plan Findings

The Master Plan St dy is to be re#ie$ed and recommendations confirmed. This is partic larly rele#ant if the follo$ing has occ rred: There has been a considerable delay bet$een the completion of the Master Plan St dy and commencement of the Feasibility St dy Significant change in go#ernment policy 5hange in ser#ice needs7demographics

5hange in site, conditions and7or changes to the -ealth Ser#ices> 7 "gency>s ser#ice and7or / siness Plans. 1f any amendments to the Master Plan St dy are to be incorporated into the Feasibility St dy they m st be clearly identified, incl ding reasons for the changes endorsed by the Project 5ontrol 6ro p and appro#ed by the (epartment.

Step F: "nalysis of F nctional /rief

The cons ltant analyses the F nctional /rief, refer to the Master Plan St dies 6 ideline to ens re that the ser#ices to be pro#ided and the manner in $hich they are to be deli#ered is completely nderstood. The analysis $ill re% ire a comprehensi#e appreciation of the f nctional re% irements and relationships of the #ario s programs and acti#ities, f nctional relationship diagrams and identification of )ey f nctional needs. The F nctional /rief sho ld be the so rce of this information. Sho ld the cons ltant re% ire additional information or clarification, the P56 sho ld be notified immediately and re% ested to pro#ide the appropriate response. The F nctional /rief may need to be refined7confirmed follo$ing this analysis phase and the final form sho ld be endorsed by the P56 prior to proceeding to the ne+t phase.

Step Q: "rea "llocation Model

"n area allocation model incorporating the space tilisation analysis sho ld be nderta)en, incl ding fre% ency of se and potential for m ltiple ses bet$een programs. Refer to the fig re, DE+ample of an "rea "llocation Model.>

Step O: 5onfirmation of Site 1nfl ences

The cons ltant sho ld in#estigate and confirm rele#ant information on site and location iss es, $hich may impact on de#elopment options. These incl de: "ccess P blic Transportation Ser#ices Topography Site ser#ices " thority re% irements Planning Schemes and Re% irements E+isting b ildings ,rientation Cie$s "djoining de#elopments Easements. Where the selection of a ne$ site is re% ired, the Feasibility St dy $ill need to confirm the preferred site as identified in the Master Plan process.
Example of Area Allocation Model

Functional "rea

"ctivit#( !pace

.o/ Ppl IF

Prop0' "rea Comments M1 NO 1ncl des 5o nsellors, 5omm nity (e#elopment Wor)er, 5omm nity ; rse, -ome Withdra$al ; rse. Treatment room $ith proofing7isolation. so nd

5omm nity -ealth,ffice Wor)ers

Speech Pathology

IG

Functional "rea

"ctivit#( !pace 1nter#ie$ Room 1nta)e Room Store Room Telephone Room

.o/ Ppl ? Q * O

Prop0' "rea Comments M1 Q? IH FG IF IF IG ?G F@O ?N QOF Q ;o. at IFmR each. ;ear main s per#ision. entrance $ith

5an be t$o rooms. O phones7des)s7so nd booths accessible from main $or) room. ; rse Manager not near main $aiting area. 0iaison75ontinence7 Palliati#e 5are ; rses (istrict ; rses GmR each.

,ffice ,ffice Staff Wor) Room S b Total 5irc lation 9FGL: T,T"0 5linical Physiotherapy7 Massage Podiatry ,ffice Treatment Room 5ons lting Room Store Room

O Q IQ

O I O Q O

Q FO FO FN IG IO

Share incl des e+ercise area. I chair and $or) bench. 1ncl des small training room. O staff at any one time. Shared by all. Shared by specialists. #isiting medical

,cc pational TherapyF

* S b Total 5irc lation 9QGL: T,T"0

FH IGG GO FHJ

0ocate near e+ternal access for Staff to mo#e e% ipment to and from #ehicles.

Step G: 1dentification of Ciable (e#elopment ,ptions

" n mber of #iable operational and detailed physical planning options sho ld be identified. These options sho ld be based on the Master Plan St dy o tcomes and other information. The options sho ld be de#eloped to s ch a le#el of detail to enable a f ll comparison. The le#el of information for each option sho ld incl de: 5oncept site and floor plans 1mpact statement on site and engineering ser#ices Site conditions and e+isting b ildings 1f appropriate, the potential to incorporate e+isting b ildings gi#ing d e consideration to the e+isting b ilding condition7fabric s r#ey recommendations

5onstr ction implications Staged $or)s.

Step ?: E#al ation of ,ptions

"n e#al ation of each option is to be nderta)en, incl ding a f ll assessment of: ,perational efficiencies Physical planning benefits 5apital costs 0ife cycle costs Rec rrent costs F t re de#elopments "sset maintenance and disposal potential "ccessibility P ality of ser#ice deli#ery 5onstr ction implications 1mplementation program Staging of $or)s7disr ption to ser#ices Ris)s associated $ith the project. The option e#al ation recommends the preferred option9s: and also pro#ides a detailed j stification. P56 appro#al is re% ired prior to the refinement of the preferred option9s:.

Step @: The Report

" Feasibility St dy report is to be prepared $hich doc ments the finding and o tcomes of Steps I to ? and also incorporates the follo$ing information: Executive Summary * s mmation of the project objecti#es, )ey iss es and recommendations on a ma+im m of F*Q pages 5onditions /rief and (esign S mmary * S mmary of e+isting b ilding conditions, F nctional and (esign /rief Re% irements and the design philosophy 5onfirmation of preferred site Options * dra$ings and statements on all options identified clearly o tlining the preferred option Full Scope of Works * describe all additional $or)s $hich may be associated $ith the de#elopment of the preferred option9s: incl ding: o Major $or)s o Site and engineering ser#ices o 0andscaping o 5onstr ction staging costs o Temporary accommodation o -a3ardo s material 9e.g. "sbestos: remo#al o (emolition o Soil contamination remo#al o Fire safety o 1mpact on s pport ser#ices o E% ipment o -eritage iss es.

Capital Costs * a 5ost Plan / m st be de#eloped for the preferred option. 1t $ill be prepared on an elemental basis by a P antity S r#eyor. 1t sho ld comprise all costs associated $ith the project incl ding: o "sset ac% isition o / ilding $or)s o E+ternal $or)s and ser#ices o / ilding ser#ices o 5onstr ction staging costs o ES( and infrastr ct re costs o F rnit re7e% ipment o Special e% ipment o Fees o 5ontingency allo$ances o Special factors o 0ocality allo$ance o (elay allo$ance for escalation and rise and fall o "sset realisation o 5ommissioning costs. Recurrent Costs * a statement of the rec rrent cost implications of the preferred option, incl ding both operational and asset costs: o ,perational Staffing Cehicles S pport ser#ices ,ther ancillary operating costs. o "ssets Temporary accommodation7ser#ices Energy Maintenance 5ommissioning costs. Drawin s * de#elopment plans of all options being considered and refinement of the preferred option9s: to concept plan le#el. 9,n small simple projects scale I:IHH, on other projects scale I:FHH. (ra$ings sho ld clearly identify the scope of ne$ and ref rbished $or)s, f t re e+pansion, s rpl s assets and staging of $or)s: !mplementation "ro ram * de#elop a proposed timetable for implementation of the project incl ding staging of $or)s, and associated cash flo$ projection that incorporates any time constraints, $hich may be imposed by associated $or)s or other rele#ant factors s ch as appro#al processes. #$ote% t&e approval process varies for pro'ects procured under "artners&ips (ictoria) "rocurement Met&od * pro#ide a preliminary statement of the preferred proc rement methods considered applicable for the project 9e.g. traditional l mp s m, constr ction management, design and constr ct: Analysis and Evaluation M The report sho ld pro#ide an analysis and assessment of all #iable options. The e#al ation process sho ld o tline the criteria for assessment and the j stification for the preferred option sho ld be clearly artic lated

Strate ic *usiness Case * The Feasibility St dy report $ill pro#ide a s mmary of the o tcomes of The Strategic / siness 5ase. "reliminary *usiness Case * .nderta)en follo$ing the completion of the Schematic (esign, ho$e#er, there may be circ mstances necessitating the preparation of this Report follo$ing the completion of the Feasibility St dy phase.

<ey 5oncepts for a Feasibility St dy

The goal of the feasibility st dy is to determine $hether or not there is a reasonable e+pectation that the co*op>s b siness can be financially #iable. /y financially #iable $e mean that all the co*ops e+penses can be paid incl ding the members> re% ired $ages and still ha#e eno gh money left o#er to pay any loans or ma)e ne$ in#estments for the de#elopment of the co*op. The follo$ing o tlines some )ey concepts yo need to do this assessment. They $ill help yo de#elop a basic financial model of the b siness. Pricing There are a n mber of reasons to start yo r analysis $ith pricing. The re#en e potential of yo r co*op is dependent pon the price and n mber of prod cts7ser#ices yo sell. .nless yo are starting $ith a completely ne$ prod ct or ser#ice in the mar)et place, there $ill already be an accepted range of prices for the prod ct or ser#ice yo are going to pro#ide. The price yo charge $ill therefore be a )ey determinant of mar)et acceptance of yo r prod ct or ser#ice. ,ne of the )ey steps in determining $hat may be a reasonable price for yo r prod ct7ser#ice is to compare it $ith those $ho $ill be yo r competitors. =o need to loo) at similar prod cts or alternati#e prod cts to determine $ho yo r competitors are and $hat prices they are charging. 1n setting the price for yo r prod ct relati#e to the competing prod cts yo m st determine $hether or not yo rs has any ni% e feat res, its % ality relati#e to the competitors, etc. 1t is also important to determine ho$ big the mar)et is for yo r prod ct and is it a discretionary p rchase or something the c stomer still needs $hen times are financially tight. ,nce yo ha#e a sense of $hat price yo can charge and an estimate of ho$ many prod cts yo can sell, yo can go on to the ne+t % estion * at this partic lar price $ill eno gh c stomers p rchase this partic lar good or ser#ice to pay the $ages, e+penses and s rpl ses 9profits: $hich the co*op re% ires to be #iable and meet the members> needs. To ta)e this ne+t step yo $ill need to nderstand some basic financial concepts. Revenue Re#en e is the money generated by the co*op thro gh sales of goods and7or ser#ices. The total re#en e is a f nction of the n mber of items sold times their price. Cost of 2oo's !ol' +C%2!, 5,6S is the amo nt the co*op m st spend to p rchase and or prod ce the prod cts or ser#ices so that they are ready to sell. 1f the co*op is a retailer, 5,6S incl des the cost of the prod cts and the cost of freight to ha#e the goods deli#ered to the store. For the man fact rer it $o ld incl de the cost of ra$ materials $ith freight and all prod ction inp ts s ch as labo r that are re% ired to prod ce the item ready for sale. 2ross Margin The gross margin is the difference bet$een the re#en e generated from the sales of goods and ser#ices and the 5,6S. 1t can be e+pressed in dollars or as a percentage of re#en e. The gross margin is the amo nt of money res lting from sales that the co*op can se to pay their other e+penses 9see belo$: $ith hopef lly some left o#er for a s rpl s 9profit:. Expenses

E+penses are all the day*to*day costs of r nning the b siness. -o$e#er it is important to nderstand there are different types of e+penses and to learn to identify $hat type of e+pense a partic lar cost is. This is important for the later analysis of $hether or not yo can e+pect yo r b siness to be profitable. Fixe' Expenses These are e+penses for a partic lar period 9say I year: $hich are inc rred no matter $hat the co*op>s le#el of sales are. E+amples incl de: rent, ins rance, telephone, boo))eeping costs, ad#ertising, heat and lights, interest payments on loansS, etc. For the feasibility analysis it is important to incl de the minim m le#el of income re% ired for each member so that they can $or) on the b siness. This is a simple calc lation for a retail operation as all the $ages can be incl ded here. -o$e#er for man fact ring operation this is more complicated, as some of the employee>s necessary income $ill be incl ded as labo r e+pense in the 5,6S calc lation. The balance of the members> $ages needs to be incl ded in the fi+ed e+penses. "nother e+pense $hich re% ires special mention is depreciation e+pense. When the co*op b ys assets s ch as e% ipment, or reno#ations to its store or offices 9any item $hich has a sef l life of many years and that $ill be sed o#er and o#er again: the initial cost is not classed as an e+pense b t is classed as an asset 9something the co*op o$ns:. -o$e#er a portion of the cost is allo$ed to be allocated as an e+pense each year. This portion is the depreciation e+pense. The co*op s ally follo$s the amo nts set by the 5anada Re#en e "gency to determine the amo nts allo$ed to be classed as an e+pense for ta+ation p rposes.: S ;ote that the principal payments on loans are not an e+pense,they m st be paid from the s rpl s 9profit: of the b siness or from additional in#estments 9o#er time: by the members. This is #ery important beca se it means that a co*op $ith loans to repay, in order to be #iable, m st at least ma)e eno gh profit to pay its loans. 3aria le Expense These are e+penses that are inc rred as a f nction of the #ol me of sales generated. For e+ample in a constr ction firm, the more different job sites going that need s per#ision, the higher the tra#el cost $ill be for the s per#isor. 1n a $holesaler, the more sales made, the greater the n mber of shipping crates $ill be re% ired. For a small co*op, #ariable e+pense can s ally be ignored for p rposes of the feasibility analysis. T st be s re to ma)e a reasonable estimate of the ann al e+pense for the item and incl de it in the fi+ed e+pense category. !urplus +Profit, Profit is the difference bet$een re#en e generated less the 5,6S and the total e+penses inc rred for a partic lar period. )reakeven Calculation "t this stage, if yo ha#e been thin)ing abo t yo r co*op b siness idea yo $ill ha#e a pretty good idea of $hat is the price yo can get for yo r prod ct, $hat it $ill cost yo to b y or man fact re them, and also $hat the other e+penses are that yo m st pay in order for the b siness to operate. ;o$ yo m st ta)e the ne+t step help to determine if the b siness can be #iable. To do this $e $ill start by doing a brea)e#en analysis. This analysis can be done by determining the n mber of nits 9prod cts: yo need to sell, if yo are man fact ring, or alternately the total #al e of the sales 9n mbers of nits time the price: in dollars that are re% ired. "s $as noted abo#e the gross margin is the money a#ailable to co#er yo r other e+penses, the brea)e#en calc lation is based on this fact. .um er of units sol' re$uire' to reakeven

For this calc lation yo are first going to determine the gross margin per prod ct, i.e. the price of the prod ct less the 5,6S for the prod ct. When yo di#ide this amo nt into the fi+ed costs, yo $ill find o t ho$ many nits yo need to sell to co#er these costs. This is the brea)e#en n mber of nits that $ill need to be sold. Re$uire' Profit/ "s noted abo#e, to be #iable a co*op is li)ely going to re% ire a s rpl s 9profit: to pay for its loans and to ha#e money to f rther de#elop its b siness, b y ne$ in#entory or e% ipment, and p rchase other assets needed to de#elop the b siness. The co*op m st determine ho$ m ch money this is li)ely to be and add this re% ired profit to the brea)e#en calc lations done abo#e. 3ia ilit# Decision /y no$ yo $ill ha#e a simple model of ho$ yo r b siness $or)s. What prod cts or ser#ices it $ill pro#ide, and at $hat price. =o $ill )no$ $ho yo r competitors are and $ill be getting the feel for $hether or not yo r prod cts ha#e a good chance of being bo ght by c stomers. The brea)e#en analysis has sho$n ho$ many nits yo need to sell or $hat are the total sales re% ired. The )ey % estion no$ is * do thin) yo can achie#e those sales! This is the time to be #ery hard*headed and conser#ati#e in yo r estimates. 1t is also a time $hen yo face one of the )ey e+periences of b siness M ha#ing to ma)e a decision and j dgement abo t the f t re based pon yo r best g esses, $ith no certainty that yo $ill be right. .ltimately, if yo proceed it $ill be based finally on the feasibility analysis, yo r g t reaction in assessing this analysis and yo r commitment to s cceed.

Types of Feasibility St dy

4echnical Feasi ilit# * (oes the company ha#e the technological reso rces to nderta)e the project! "re the processes and proced res cond ci#e to project s ccess!

!che'ule Feasi ilit# * (oes the company c rrently ha#e the time reso rces to nderta)e the project! 5an the project be completed in the a#ailable time! Economic Feasi ilit# * 6i#en the financial reso rces of the company, is the project something that can be completed! The economic feasibility st dy is more commonly called the cost7benefit analysis. Cultural Feasi ilit# * What $ill be the impact on both local and general c lt res! What sort of en#ironmental implications does the feasibility st dy ha#e! 5egal(Ethical Feasi ilit# * What are the legal implications of the project! What sort of ethical considerations are there! =o need to ma)e s re that any project nderta)en $ill meet all legal and ethical re% irements before the project is on the table. Resource Feasi ilit# * (o yo ha#e eno gh reso rces, $hat reso rces $ill be re% ired, $hat facilities $ill be re% ired for the project, etc. %perational Feasi ilit# * This meas res ho$ $ell yo r company $ill be able to sol#e problems and ta)e ad#antage of opport nities that are presented d ring the co rse of the project Marketing Feasi ilit# * Will anyone $ant the prod ct once its done! What is the target demographic! Sho ld there be a test r n! 1s there eno gh b 33 that can be created for the prod ct! Real Estate Feasi ilit# * What )ind of land or property $ill be re% ired to nderta)e the project! What is the mar)et li)e! What are the 3oning la$s! -o$ $ill the b siness impact the area!

Comprehensive Feasi ilit# * This ta)es a loo) at the #ario s aspects in#ol#ed in the project * mar)eting, real estate, c lt ral, economic, etc. When nderta)ing a ne$ b siness #ent re, this is the most common type of feasibility st dy performed.

/enefits of Feasibility St dy

Increases chances of the project eing a success: The Feasibility St dy $ill identify the hard parts of the project. 1t $ill help identify dependencies in the planning i.e. trials that need to be done7% estions that need to be ans$ered before )ey decisions on eradication design can be made. This $ill allo$ time for yo to address all of the iss es before the operation starts. This $ill red ce project ris) and the li)elihood of s rprises later in the project. 1ss es can be planned for and dealt $ith. The Feasibility St dy Stage tells yo $hat yo need to prepare and plan in the ,perational Planning Stage so that yo can be $ell prepared. Informe' 'ecision making: To manage sta)eholder e+pectations abo t ho$ m ch the project $ill cost and ho$ long it $ill ta)e. Ens res the decision and commitment of time and money to the project is based on acc rate information. To enable ade% ate reso rces and timeframes to sol#e iss es Re'uces wasting mone#: Projects that are too diffic lt $ill be stopped early, rather than later $hen more money has been spent or before e+pectations are raised too far. 5oncl ding that a project is not feasible is not a bad o tcome, as it: o "#oids $asting time and money on a project that $o ld later fail. o Enables yo to identify $hat e+tra $or) needs to be nderta)en to ma)e it feasible . Recor's what #ou know a out the project: ( ring the Feasibility St dy Report yo $ill ha#e gathered significant amo nts of #al able information on the project M the objecti#es, the site, the impacts and $hat yo plan to do. "ll this information $ill be sed again in the pcoming Stages. "ll is not lost if a project is not feasible at this point in time, it may become feasible in the f t re as ne$ techni% es are de#eloped or technology becomes a#ailable. The $or) completed in the Feasibility St dy can then be sed. 4he Feasi ilit# !tu'# Report can e use' to support #our fun'ing application: Many f nding organisations $ill f nd the Feasibility St dy and maybe the Project (esign stage separately from the ,perational Planning and 1mplementation Stages. While many f nders $ill re% ire yo to complete their o$n f nding application doc ment, yo r Feasibility St dy Report can be sed as part of the application.

Reasons 6i#en ;ot to (o a Feasibility St dy

Project leaders may find themsel#es nder press re to s)ip the &feasibility analysis' step and go directly to b ilding a b siness. 1ndi#id als from $ithin and o tside of the project may p sh to s)ip this step. Reasons gi#en for not doing a feasibility analysis incl de: We )no$ it>s feasible. "n e+isting b siness is already doing it. Why do another feasibility st dy $hen one $as done j st a fe$ years ago! Feasibility st dies are j st a $ay for cons ltants to ma)e money. The mar)et analysis has already been done by the b siness that is going to sell s the e% ipment. Why not j st hire a general manager $ho can do the st dy! Feasibility st dies are a $aste of time. We need to b y the b ilding, tie p the site and bid on the e% ipment. The reasons gi#en abo#e sho ld not diss ade yo from cond cting a meaningf l and acc rate feasibility st dy. ,nce decisions ha#e been made abo t proceeding $ith a proposed b siness, they are often #ery diffic lt to change. =o may need to li#e $ith these decisions for a long time.

Reasons to (o a Feasibility St dy
5ond cting a feasibility st dy is a good b siness practice. 1f yo e+amine s ccessf l b sinesses, yo $ill find that they did not go into a ne$ b siness #ent re $itho t first thoro ghly e+amining all of the iss es and assessing the probability of b siness s ccess. /elo$ are other reasons to cond ct a feasibility st dy. 6i#es foc s to the project and o tline alternati#es. ;arro$s b siness alternati#es 1dentifies ne$ opport nities thro gh the in#estigati#e process. 1dentifies reasons not to proceed. Enhances the probability of s ccess by addressing and mitigating factors early on that co ld affect the project. Pro#ides % ality information for decision ma)ing. Pro#ides doc mentation that the b siness #ent re $as thoro ghly in#estigated. -elps in sec ring f nding from lending instit tions and other monetary so rces. -elps to attract e% ity in#estment. The feasibility st dy is a critical step in the b siness assessment process. 1f properly cond cted, it may be the best in#estment yo e#er made.

+efere!,es:
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