THE FEASIBILITY STUDY

After studying this topic, you should be able

to:
 Define what is feasibility study is;
 Identify the uses of a feasibility study;
 Describe how the feasibility study aids in
planning a hospitality operations;
 Describe how to implement the
recommended steps in the preparation of
the feasibility study.
FEASIBILITY STUDY AND ITS USES
A lodging or a foodservice concept that works is very
rewarding to an entrepreneur.
What is Feasibility Study?
- is a creative, objective, rational process whereby
marketing and financial data are collected, assimilated and
analyzed.
Objectives of a feasibility study are :
1. to determine whether or not to proceed the project,
define the optimum scope and quality of the facilities.
2. quantify its prospects for financial success or failure with
reasonable accuracy
IMPORTANCE OF A FEASIBILITY STUDY
 Defines the lodging and foodservice facility by
suggesting the type of food, service, price range,
and size of operation.
 Determines whether a particular locations is
economically feasible for a particular hospitality
operations.
 Shows a whether a market exists.
 Quantifies the prospects of financial success.
 Helps organize financing from banks, lending
institutions and other sources.
PARTS OF A FEASIBILIT STUDY

 Technical section - usually describes the

product- what it is and how it is made.
 Marketing section - discusses the product’s
target group or to whom the product will
be sold and how these potential markets
can be reached.
 Financial aspect - translates the two
portion into profit or loss.
HOW TO DO A FEASIBILITY STUDY
The following are suggested ways of doing an investigation
of the project:
1. Start with the objectives to be attained.
2. Define the scope.
3. Conduct a market study.
4. Do a technical analysis that should describe the product
or service, what it is, and how it is made.
5. Prepare the financial statements so that the project can
be evaluated in terms of its commercial profitability and the
financing required to put up the establishment.
6. Evaluate, then conclude.
A Project Feasibility Analysis Flow Chart for
Lodging and Foodservice Operations
 THE MARKET STUDY
The study presents the market and analysis of the past,
present and future demand and supply situations for a
particular product.
SITE SELECTION
I. SITE ANALYSISGUIDE II. LOCAL AREA III. GENERAL AREA
EVALUATION EVALUATION EVALUATION
A. Site A. Area growth A. General statistics
Description pattern B. Types of major
1. Size B. Visual appeal retail
2. Boundaries of local area and business in the area
3. Topography survey surroundings C. Major industrial
4. Subsoil conditions concern in area
5. Drainage
problems
 I. SITE ANALYSIS II. LOCAL AREA III. GENERAL AREA
EVALUATION EVALUATION EVALUATION
B. Site C. Distance of D. Evaluate
Evaluations facilities that effectiveness of:
1. Visibility from generate major 1. Area
main demand for rooms redevelopment
arteries of food programs
2. Accessibility to and beverage from 2. Area industrial
and from main area and/or
arteries D. Local tax rates economic
3. Access to other E. Proximity of development
transportation retail centers commissions
4. Availability of F. Labor
water and sewage availability
hook up
 I. SITE ANALYSIS II. LOCAL AREA III. GENERAL AREA
EVALUATION EVALUATION EVALUATION

5. Availability rates G. Attractions of E. Evaluate major

of gas, electricity, area area labor market
and H. New and projected
telephone construction changes in light of
6. Traffic counts I. Office space effect on proposed
7. Zoning rentals and rent property’s
8. Adequacy of plot levels operating cost.
size for proposed J. Local industry 1. Are there unions?
project and K. Trading area 2. What are the
future expansion and consumer closest
buying power hotel, restaurants
and/or labor unions?
3. Effect of labor
unions
I. SITE ANALYSIS II. LOCAL AREA III. GENERAL AREA
EVALUATION EVALUATION EVALUATION

F.Number of banks,
savings and loan
associations, insurance
companies and
deposits of each in
general area.
G. Estimated
construction
costs of various types of
buildings in project.
H. Umber of theaters in
area; their age; type
and seating capacity
SITE ANALYSIS
 Sitedescription and evaluation is the initial
element that of which determines the
overall physical development of profitable,
well-planned, and visually attractive
lodging and foodservice facilities.
 The proper selection of site should ensure
accessibility, visibility and availability.
 Zoning ordinance should permit the
business to operate at the chosen location.
What are the existing zoning restrictions in the
area?
What are the building code regulations?
Are there problems pertaining to waste
building?
What measures are being taken to ensure the
waste disposal is carried out properly?
Are utilities such as water, gas and electricity
lines available?
Will poor drainage cause flooding?
LOCAL AREA EVALUATION (LAE)
Area growth pattern needs to be evaluated to
determine the prospects for the investment .

Will the value of the property appreciate by being part

in the growth of a thriving community?
Will it depreciate because of a deteriorating
neighborhood?
New buildings and highways are good indicators of
positive economic health of the country as well as
availability of rentable office and sufficient parking
space.
GENERAL AREA EVALUATION (GAE)
Basic Market Survey Information
* Demographic, psycho graphic, behavioral and geographical
profiles of the customers (including social and economic
status)
* Number of prospect customers
* Customers wants and needs (how much can they afford?)
- Product (food and rooms): quality, quantity, type of
service, and
- Service: speed, self-service, waiter service, room
service, line, paper, china, silver, disposable
- Ambiance: decor, appointments, lighting, air
conditioning, acoustics, sitting arrangements, etc.
Suggested Detailed Information related to the
Demographic, Psychographic, Behavioral and Geographical
Profiles of customers are as follows:
1. Descriptive occupations:(business people, office workers,
craftsmen, yuppies, salesperson, working students, retirees)
* The kind of occupation will affect the menu offering,
portion sizes, method of service, pricing and the types of
dining atmosphere.
* It was also affect the choice of menus in lodging
facility.
2. Income Level:(family income)
It is postulated that the higher the income level of a family,
the higher is the budget available for eating out.
3.Age: (9 young, teens, twenties, thirties, mid-life-forties,
seniors-golden-age, 50-60 years old) Age information I
needed for the planning and development of the menu, as
well as the amenities of the room for occupancy.
4. Gender: The result of a survey conducted among
customers of both sexes indicated that there a distinct
character for one sex. Female- the demand is for pleasant
atmosphere, large and comfortable rest rooms, and unique
decor; male - less formal and more functions.
5. Education ( elementary, high school, vocational, graduate
school) Studies have indicated that the highest the
educational level of customers, the greater the frequency
of dining and their willingness to try new cuisine.
6. Spending Habits (tight, generous, reasonable) This
element in the survey is often related to occupation, age
and income. Young generation spend more for food.
7. Activities that relate to dining (shopping, traveling,
conventions, entertainment, events, sports, etc.) People
who shop , travel , attend conventions, watch sport events
or movies before or after the vent normally seek for a place
to eat.
8. Arrival patterns:( singles, couples, families, male groups,
female groups, mixed groups) Arrival patterns of customers
influence the design of the facility from the standpoint of
peak operation, both in the lodging and foodservice
operation.
9.Motivation: ( change in routine: a favorite of housewives,
necessity due to time or distance limit convenience , business
reasons , special occasions: families often celebrate happy
occasions with food, adventure)
10. Miscellaneous
* Ethnic : Background ( Asian Indian do not eat the sacred cow)
* Food Preferences(rice has long been a staple of the Filipinos)
* Eating habits (eating with chopsticks)
* Marital status ( working mother find it more convenient to
buy ready -to-eat meals)
* Means of transportation (parking space for any type of
vehicle is always appreciated by customers)
* Preferred meal periods for dining out. (weekends are peak
days for restaurant)
PRODUCT OR TECHNICAL STUDY: Facilities
Specification
Working from this profile of prospective guests, it is a
necessity to develop the facilities specifications , detailed enough
to form the basis of an architectural program.
Lodging Facilities Specifications
* The size of the operation and number of guestrooms;
* The predetermined space requirements for public areas ,
food and beverage outlets, swimming pools.
* Functional and service areas, housekeeping, offices,
employees facilities and others.
* Recent hotel features
* Configuration of guestrooms
Foodservice Facilities Specifications
* The size of the operation and number of functional
areas.
* The predetermined space requirements for each
functional area : public utility: service production with
receiving, storage , issue, preparation , cooking, baking, pre
service storage , service issuing.
* Functional and service areas: ware-washing,
maintenance, housekeeping , offices , employees facilities
and others.
* The type of seating in each area
* The type and quality of service, menu and the proposed
environment for each functional.
FINANCIAL ANALYSIS

Financial
Analysis

Capital Investment Budget

Operating Budget
- Land
- Revenues
_ - Equipment
- Building - Expenses
- Working Capital - Net Return
CAPITAL INVESTMENT BUDGET (CIB)
The capital investment budget includes a detailed statement of the
investment required for land , building, furnishing and equipment and
working capital.
Project Cost Estimates
Land
Construction Cost
Architect and Engineer’s fee/ Consultant’s fee
Taxes
Furniture, Fixtures and Equipment
Pre-opening expenses
Working Capital
Overhead Expense

Contingencies
FIXED CAPITAL OUTLAY
OPERATING CAPITAL BUDGET FOR
FOODSERVICE OPERATION
In an operating budget, the estimates of revenues and expense are included.
Example of estimated Income and expenses for a local Filipino Restaurant
Estimated Gross Sales____________________________ P 4,862,000
Less: Value Added Tax (VAT) 10%___________________ - 486, 200
(No service charge)
Net Sales______________________________________ P 4,375,800
Less: Food & Beverage Cost (35%)__________________ - 1,303,200
Gross Profit____________________________________ * P 3,072,600
Controllable expenses:
Labor cost
Payroll______________P644,560 (53,713/mo.)
SSS Contribution______ 128,152
Employee Benefits____ 70,38
 Table Appointments__ __ 140,000 (11,000/mo.)
Utilities(water& energy) 100,000
Garbage Fee__________ 25,000 (2,000/mo.)
Advertising____________ 25,000 (2,000/mo.)
Repairs & maintenance__ 35,000 (2,900/mo.)
General & Supplies _____ 135,000 (2,900/mo.)
Cleaning & Laundries___ 25,000 (2,000/mo.)

Total Controllable Expenses________________ *P 1,328,092

Profit before occupation cost, depreciation _______ P 1,744,508
& income taxes
ESTIMATE OF REVENUE FOR LODGING
FACILITIES
To determine the lodging operations economic feasibility;
the projected occupancy rates and estimated room rates are
used for that particular type of facility.
* Occupancy rates are derived by dividing the number of
rooms available for rent into the number of rooms occupied.

For example: 100 rooms available = 70 % occupancy rate

70 rooms rented
For estimated room rates. Each room is given a standard room rate , but
that is not necessarily the rate for which it will be sold. Room rates are
determined using the following criteria.
A. Type of room : denotes the size or number of
people it can accommodate
B. Location of room : rooms at the top having a picturesque view are
priced more expensively than the others in the hotel
C. Kind of guest : standard rate - for majority of the guests
Corporate rate - negotiated discounts for companies
D. Meal Plan : choice between all meals or no meals included; breakfast
only
E. Length of stay : resident guests qualify for reduced room rate.
F. Day of the week : business hotels have lower rate on weekends.