UNIVERSITY OF SAINT LOUIS-TUGUEGARAO

School of Business Administration and Accountancy, 2013-2014

Junior Philippine Institute of Accountants
MEMORY AID IN MANAGEMENT ADVISORY SERVICES
Any form of reproduction of this copy is strictly prohibited!!!

CHAPTER 17:
Project Feasibility Study

☛What is Project Feasibility Study? Table 1. FEASIBILITY STUDY VS. BUSINESS PLAN

FEASIBLITY STUDY BUSINESS PLAN

 It is a systematic process of conducting a
preliminary study to determine and Provides an investigating Provides a planning
document a project’s viability. It doesn’t function function
guarantee financial success but may reduce
risk of failure of business ventures. Analysis of possible
Outlines the actions
alternative solutions to a
needed to put a
☛What are the basic steps in the preparation of problem and provides
proposal into reality
Project Feasibility? recommendations.

Outlines several Confines to only one

a. Collection of relevant date
alternatives or methods alternative or model
b. Evaluation and analysis of data gathered
c. Formulation of recommendation Conducted after a
Conducted before the business venture is
business plan deemed to be
visible

Table 2. BENEFICIARIES OF FEASIBILLITY STUDY

Organizers of new projects Basis to ascertain the practicability of proposed projects.

Basis to decide whether or not to provide financial

Creditors assistance and to determine the appropriate terms and
conditions of such assistance.

Investors Helps to Decide whether to invest in the project or not.

Ascertain the feasibility of expansion programs. It also

serves as a basis in deciding on the possibility of taking over
Management of existing firms
existing business, as well as the extent of the capital outlay
required.

Evaluate the project’s social desirability and to check if the

project meets the applicable legal requirements, as well as
Governmental instrumentalities
to determine the level or extent of incentives that may be
required.

National economy as a whole Minimizing the risk of failure of business ventures.

Management Advisory Services (MAS) Committee: Hazeleen Martinez; Jimmy Joe Miranda; Cliff Mark Confidente;
106 Corina Bariuan; Kristina Gaddon; Rizalyn Taguibao ;Niῆo Rey Mangupag; Marjhon Maramag; Leo Jay Labasan
Adviser: Mary Queen Ramos, CPA
 UNIVERSITY OF SAINT LOUIS-TUGUEGARAO
School of Business Administration and Accountancy, 2013-2014
Junior Philippine Institute of Accountants
MEMORY AID IN MANAGEMENT ADVISORY SERVICES
Any form of reproduction of this copy is strictly prohibited!!!

☛What are the major aspects of a feasibility study?

Table 3. MAJOR ASPECTS OF FEASIBILITY STUDY

Market feasibility Made to view the potential impacts of market demands, competitive activities, etc. and
‘’divertible’’ market share available.

Technical feasibility Ability of the process to take advantages of the current state of technology in pursuing
further improvement.

Managerial feasibility Involves the capability of the infrastructure of a process to achieve and sustain process
improvement.

Organizational feasibility Considers questions whether system has enough support to be implemented
successfully, whether it brings an excessive amount of change, and whether the
organization is changing so rapidly to change it.

Schedule feasibility Involves questions such as how much time is available to build the new system, when it
can be built, whether it interferes with normal business operation, number of
resources required, dependencies, etc.

Economic feasibility Evaluate the proposed project to generate benefits. A cost-benefit and breakeven
analysis is important in evaluating economic feasibility.

Financial feasibility Capability of the project organization to raise the appropriate funds needed to
implement the proposed project.

Cultural feasibility Deals with the compatibility of the proposed project with the cultural set up of the
project environment.

Social feasibility Addresses the influences that a proposed project may have in the social environment.

Safety feasibility Whether the project is capable of implemented and operated safely with adverse
effects on the environment.

Political Feasibility Must be politically correct project which requires an evaluation of the compatibility of
project goals with the prevailing goals of the political system.

Legal feasibility All must projects must face legal security to address legal issues that may arise and to
determine if requirements are met and possible incentives and protection are availed
of.

Environmental Feasibility Environmental concerns must be considered before taking any actions.

Management Involves selection of business structure, personnel setup and internal policies for an
effective operations.

Taxation Analysis of tax effects and legal tax saving measures and other government incentives
applicable to the project.

Management Advisory Services (MAS) Committee: Hazeleen Martinez; Jimmy Joe Miranda; Cliff Mark Confidente;
107 Corina Bariuan; Kristina Gaddon; Rizalyn Taguibao ;Niῆo Rey Mangupag; Marjhon Maramag; Leo Jay Labasan
Adviser: Mary Queen Ramos, CPA
 UNIVERSITY OF SAINT LOUIS-TUGUEGARAO
School of Business Administration and Accountancy, 2013-2014
Junior Philippine Institute of Accountants
MEMORY AID IN MANAGEMENT ADVISORY SERVICES
Any form of reproduction of this copy is strictly prohibited!!!

Sources of Financing Analysis of possible sources of financing that may avail to carry out the project

Profitability Weighs the ration of capital outlay in relation to profit that can be obtained.

What is the scope of Feasibility Study?

TABLE 4. SCOPE OF FEASIBILITY ANALYSIS

Need Analysis It indicates why the project must be done. It may affectthe
organization itself, another organization, the public, or the
government.

Process Work Preliminary analysis done to determine what will be

required to satisfy the need, often involves system models
or prototypes.

Engineering and Design Involves a detailed technical study of the proposed project.

Cost Estimate Involves estimating project cost to an acceptable level of

accuracy. Both the initial and operating cost are included in
the cost estimation.

Financial Analysis Involves an analysis of the cash flow profile of the project.
This is critical since it determined whether or not and
when funds will be available to the project.

Project Impacts Provides an assessment of the impact of the proposed

project. Environmental, social cultural, political and
economic impacts may be some of the factors.

Conclusions and Recommendations Indicate an endorsement or disapproval project.

Recommendation on what should be done be included in
this section of the feasibility project.

What are the attributes of a good feasibility study? ☛What are the constraints in feasibility study
Attributes of a good feasibility study. preparation?
1. Unavailability of required and necessary
Comprehensive Must be adequate to
information.
meet the needs of the
2. Incompetence of the one making the
users, clear and well
judgment resulting in erroneous
investigated.
conclusions and ineffective
Objective Must present/reflect recommendations.
both the positive and 3. The fact that the study is based on forecast
negative implications. cannot be denied. Thus, results of forecast
may not coincide with actual events.
Simple Easy to understand

Management Advisory Services (MAS) Committee: Hazeleen Martinez; Jimmy Joe Miranda; Cliff Mark Confidente;
108 Corina Bariuan; Kristina Gaddon; Rizalyn Taguibao ;Niῆo Rey Mangupag; Marjhon Maramag; Leo Jay Labasan
Adviser: Mary Queen Ramos, CPA
 UNIVERSITY OF SAINT LOUIS-TUGUEGARAO
School of Business Administration and Accountancy, 2013-2014
Junior Philippine Institute of Accountants
MEMORY AID IN MANAGEMENT ADVISORY SERVICES
Any form of reproduction of this copy is strictly prohibited!!!

KEY CONCEPTS AND PROCEDURES IN PROJECTING  [NOTES:]

FINANCIAL STATEMENTS
-Management establishes a target balance sheet on
the basis of ratio analysis
-Financial forecasting begins with a forecast of sales,
both in pesos and units, for some future periods.
-Projected financial statement method and formula
method are used to forecast financial requirements.
-Additional funds needed (AFN) can be determined
to support the forecasted level of sales and then
subtract from that amount the funds that will be
generated from operations. AFN can be raised
through bank borrowings, issuance of securities, etc.
-The higher the firm’s sale growth rate, the greater
will be its need for additional financing. Also, the
larger a firm’s dividend payout ratio, the greater its
need for additional funds.
Relevance of particular cost of a decision is
determined by the ACCURACY AND VERIFIABILITY of the
cost.
MARKETING,ENGINNERING / TECHNICAL AND
FINANCIAL – grouping of major aspects of Feasibility Study
that is considered to be critical.
Firm’s financial plan must be consistent with the
firm’s STRATEGIC PLAN, OPERATIONAL PLAN and
CORPORATE OBJECTIVES.
ASSUMPTIONS- explicit statements about the possible
future behavior of certain variables, affecting a project
which serves as the premise for projecting financial results.
A feasibility study involves PROJECTED DATA
developed under specific assumptions and shows the
PROJECTED RESULTS of operations of a business proposal.
Thus, UNCERTAINTY, an avoidable element. SENSITIVITY
ANALYSIS can be used to minimize the effect of uncertainty
through determining the impact of a change in factor(s)
influencing projected result.
A feasibility study is AFFECTED BY ANY SIGNIFICANT
CHANGE IN ACTUAL BUSINESS CONDITIONS as compared
to the assumptions used when the forecasts were made.
FORECAST is the primordial basis of feasibility study.

-If economies of scale exist in the use of assets,

excess capacity exists, or if assets must be added in
lumpy increments, adjustments must be made.

-Linear regression and excess capacity adjustments

can be used to forecast asset requirements in events
which assets cannot be expected to grow at the
same rate as sales.

BASIC EQUATION IN FORECASTING FINANCIAL

REQUIREMENTS

Additional Funds Needed = Required increase in

assets – Spontaneous increase in liabilities – increase
in RE

Management Advisory Services (MAS) Committee: Hazeleen Martinez; Jimmy Joe Miranda; Cliff Mark Confidente;
109 Corina Bariuan; Kristina Gaddon; Rizalyn Taguibao ;Niῆo Rey Mangupag; Marjhon Maramag; Leo Jay Labasan
Adviser: Mary Queen Ramos, CPA