Professional Documents
Culture Documents
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Module 1. Business Analysis Tools and Concepts
Overview
Risks nowadays come from different forms and sources. Companies must be
able to understand how to sustain their existence in the industry by analyzing the
available information of the company. This module discusses the importance of
business analysis to companies. In order to conduct theses analysis, tools are created
to facilitate and ensure that a holistic approach was observed, and all the facets of the
organization is revisited for continuous improvement.
At the end of the module, discussion will focus on the development of business
feasibility study to formalize the solution which was thought of out of the issues and
gaps that were identified like supply shortage, competition, organizational issues etc.
Module Objectives
At the end of the module the students, particularly BSA and BSMAs, should:
• Discuss the areas related to strategic business analysis
• Develop a case problem on the current business trends and issues emerged in
business accounting
• Discuss the importance of business feasibility study
• Enumerate the parts and identify the information needed to be used to develop each
part
Course Materials
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from any risks that the organization might face given the trend the company is taking.
Business analysis is an inherent function of the organization where they visit and review
their existing processes based on the data, knowledge and information made available
to a group of strategic individuals that unearth any opportunities or threat in the existing
organizational model. This is used to enable the company the make realization of the
potential benefits or growth by improving on how they run the day to day operations and
creating the architecture suitable to their organization. (International Institute of
Business Analysis, 2020).
Balanced Scorecard
This tool was first introduced in early 1990s by David Norton and Robert
Kaplan. Kaplan is a senior fellow and professor in the Harvard Business School.
Norton is a founder and director of the Palladium Group. The model follows that
the assessment should be able to address the following:
The organizations must identify their goals and identify how these will be
measured by putting inconsideration the following:
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• Customer Perspective
• Internal Business Perspective
• Innovation and Learning Perspective
• Financial Perspective
Next perspective is seeing through what can be done and improve for the
future and would create more value for the company. Continuous improvement
will add flavor to the company values because it exceeds or outperform what was
expected of them.
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SWOT Analysis
One of the most popular business analysis tools used is the SWOT Analysis.
Probably it is due to the convenience and can be remembered easily. The objective of
this tools is to enable the companies or organization to have a oversight or awareness
on the factors that would affect their long term strategy. Through SWOT, the senior
management will be able to identify and understand what factors they should consider
improving further, reinforcing, exploit and mitigate. (Schooley, 2019)
• Strength
• Weakness
Weaknesses are the factors that slows down the company from
earning more. As business strategy, it is important for companies to
understand on what areas that they should focus on to avoid these “iron
ball” that prevents them from attaining their goals.
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internal controls must be scrutinized further and possibly understaffing is
existent. In this scenario, the resolution is to review the organization’s full
time equivalent and review the segregation of responsibilities. Although,
most of the companies, find the exercise of reinforcing and converting the
weakness into strength more costly thereby they opt to just eliminate the
weakest link in the organization.
• Opportunities
In business there are a lot of venues and factors that would help
the company to grow further, these factors are classified as opportunities.
Opportunities are factors that will enhance the returns of the company.
This is not yet considered as strength since these are not yet part of the
company but a potential for the company. These make the form of new
technology, market expansion, new demand etc.
• Threats
Threats are negative results of the furtherance of other factors. Like
if the weaknesses were left out and not resolved either reinforced or
eliminated it may be dangerous or fatal to the company’s performance.
Also, strengths which are over focused may also result into threats.
Strategic managers often resolve threats by exploring how they can
capitalize this to become opportunities and later on company’s strength.
It may be noted that the factors under strength and weaknesses are those
internal to the organization while the opportunities and threats are more of external to
the company. In using the analysis the model is designed as a matrix of all factors to
enable the analyst going to the senior management to have an overview of the variables
that would affect the business performance.
PESTEL Analysis
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is called PESTEL. This analysis is used for developing corporate strategy and laying
down the opportunities and challenges in meeting the corporate target. This approach
incorporates the SWOT Analysis, the 5 Market Forces of Michael Porter and other
relevant tools for developing corporate strategy. (Corporate Finance Institute)
Originally, the framework focuses on the first four acronyms i.e. PEST.
Eventually as business and industries progresses it also includes factors that affect
environmental and legal.
• Political. Political factors are those that are driven by government rules
and regulations that will impact the business as usual activities of the
company. These includes tax laws, tariff regulations, quotas etc.
• Economic. Economic factors account for the various drivers in the
industry like economic growth rate, inflation, foreign exchange rates,
competition etc. Normally these factors are regulated by the Bangko
Sentral ng Pilipinas for the Philippines.
• Social. Social Factors are those which are driven by demographic profile
and culture where the business operates, distributes or conducts its
business operations.
• Technological. Technological factors are those driven by the new
technologies, innovations and introduction of new tools that will be made
available or being used by the business in the conduct of their operations.
• Environmental. Environmental factors are driven by the input or output of
the company that may contribute to the improvement or may harm the
environment. These could be calamities or natural disasters, temperature,
pollution, and favorable weather condition.
• Legal. Legal factors are focused on the legal or statutory requirements of
the company. These are normally linked with the political factors the
difference only is the focus. Legal factors are normally specific to a
company while political factors are industry or nationwide.
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In identifying these factors will also enable the company to identify the
elements that will aide them in developing strategies to mitigate potential risks
that these factors may bring.
Risk Assessment
The ERM must support the organization in achieving its objectives on:
• Strategic. These are high-level, normally long term goals aligned with and
supporting its mission statement.
• Operations. Operational objectives are geared through effective and efficient
use of its resources.
• Reporting. Enterprise must have a consistent and reliable reporting framework
• Compliance. The enterprise must all times ensure to adhere with the relevant
laws, rules and regulations.
ERM is covered by eight components which were derived on the manner how
enterprises were operated using the core management processes. The components
are:
1. Internal Environment. This describes the organization itself and sets the
boundaries on how the risk will be viewed and appreciated. This includes the
company’s structure, philosophy and appetite for risk, ethical standards and the
operating model of the company.
2. Objective Setting. This is a vital and important process wherein the strategies,
risk appetite and the company’s mission must be aligned.
3. Event Identification. This is the process where the Enterprise will assess all the
possible sources of risk and opportunities. Management tend to gear their
decision towards maximizing the opportunities and reducing the risk involved.
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4. Risk Assessment. This is the process of identifying the risk, its likelihood and its
impact to the Enterprise.
5. Risk Response. This process allows the management to identify how will they
respond to the identified risk. The mitigation of risk is not always elimination
because it is practically impossible. The responses could be avoiding its
occurrence, accepting the reality it is existing, reducing the risk to a tolerable
level or transferring it.
6. Control Activities. Processes and policies will be laid down and the enterprise
must identify points where controls must be instilled and how to ensure that its
installation will not hamper the operations.
7. Information and Communication. This is a vital process of engaging all
stakeholder. Risk can be mitigated easily if all the people involved especially
those who have stake in the Enterprise will be able to understand and respond to
the risk as they arise.
8. Monitoring. The effectiveness of any improvement and policy enhancement can
be done by continuous monitoring and assessment of the situation. With the
close monitoring and timely escalation of “red flags” will enable faster resolution
or improvements. (PricewaterhouseCoopers LLP, 2004)
The cost centers are centers that incurred costs to support the business
operations. The costs centers must be identified since they are main contributors to the
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company’s middle line. By making these costs centers efficient the company can be
able to improve their returns. Another responsibility center is are the profit centers.
These are areas responsible for realizing returns these are business units that have a
control on both revenue and cost. Next are the investment centers which primarily
focused in ensuring that the portfolio is realizing the target returns. Normally, the metric
used in assessing the investment is the ROI.
In the course of analyzing the business and its operations, gaps and
opportunities were identified. The gaps can either be resolved with improvements on
products or services, new offerings, efficient way to manufacture or render the services.
Opportunities can be maximized by business expansion, tapping another market,
offering new products and services and even innovating processes. Companies before
doing their investment does their study first to ensure that all costs will be considered
over the potential returns of the initiative. Hence, the use of business feasibility study is
imperative before making substantial investment on a certain activity or business
proposition.
The Market Aspect is the portion on which the 4Ps or the product/service, price,
place and promotion were being established. This aspect also includes analysis of the
market and industry. This will include the analysis of demand and supply, pricing and
customers willingness to pay etc.
The Technical Aspect is the portion of the study that responds to the demand
established by the market aspect. Here, the technical requirements that are needed to
produce or to render the service including the required capital expenditures must be
properly laid down.
The Management and Legal Aspect provides for the organizational structure
appropriate for this kind of business. If the business feasibility study is focused in
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introducing innovation and change, this aspect shall focus more on the compliance
requirements and whether the initiative complies with the relevant laws, rules and
regulations and such are quantified to be considered as an input in the financial
implication of the study.
Financial and economic aspect deals on how all inputs translates to the currency
that the proponents must expect from the business opportunity or the gap that this
initiative is trying to address. Normal output of this aspect is a pro-forma financial
statement covering not less than 5 years for proper assessment and determination of
risk to be anticipated.
Once all aspects of the study find its feasibility then the company can start
implementing the proposed change, new product or service or other matters that would
impact the returns of the company.
Read
• Books on Financial Management, Investment and Portfolio Management, and
Strategic Management
• News clipping and other authorized and generally acceptable media
Activities / Assessments
1. Case Analysis
o Select for a company and gather recent information about them based on
news clippings, news reports, articles, annual reports, audited financial
statements and other literatures relevant to the company.
o Answer the following questions:
a. What is the profile of the company?
b. What is the recent issue/s and challenge/s they are facing?
c. Conduct a PESTEL and SWOT Analysis on the issue/s raised
d. Make recommendation based on the analysis
o Answers must be written or encoded personally and submitted within 1
week or as maybe prescribed by an instructor.
2. Essay. Enumerate and describe how each part of the Business Feasibility Study
is related to assess a business feasibility.
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Module 2. Market and Industry Analysis
Overview
Module Objectives
At the end of the module the students, particularly BSA and BSMAs, should:
Course Materials
In conducting the market and industry analysis, the analyst must be aware that
each product and service offering is distinct from another. Hence separate demand
study must be conducted for each product or service offering to establish a reference
and at the same time this must be accounted for separately to determine that
contributor to the impact to the total revenue.
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In assessing or developing a single product or service is the easiest since the
analysis will have a focus. In the conduct of product analysis, the following are the areas
should look into:
• Costs. Most of the time this is the deal breaker. The costs will affect the
viability of the product since this will serve as a significant basis to
determine the price. Affordability and value for money is always an issue
to enable the companies to market their product and services well.
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• Environment and Safety. It started to become a fad that products and
even services should be environmental conscious and promotes safe
usage. Service oriented must demonstrate good corporate social
responsibility by knowing ways on how they should respond to their
customer needs and factoring it the care it should extend to the
environment and to the safety of their customer / clients.
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the population. Normally, Slovin’s formula is used to determine the sample
if the population is defined. (Glen, 2020). Slovin’s formula is written as:
𝑁
𝑛=
(1 + 𝑁𝑒 2 )
n = no. of samples
N = total population
e = margin of error
To illustrate, you are going to launch a new model of ladies’ shoes in the
city of Marikina. Based on the local government statistics, Marikina City
has about 480,000 people with the male to female ratio of 52:48. The
researcher’s confidence level is 95%. Based on the foregoing the sample
should be 399.67 or 400 samples computed as follows:
480,000
𝑛=
(1 + (480,000)(1 − 95%)2 )
𝑛 = 399.67
n = number of samples
p = estimated proportion of the population
e = margin of error
q=1–p
Z = z value based on the Z table
To illustrate, you are about to offer laptop repair service in the city. Given
that it is hard to determine who are the owners of laptop and more
specifically the laptops that will soon to be repaired the population is
undeterminable. Off-hand you think it is about 0.25 of the population and
you are setting 95% confidence. Based on the z-table the Z value is 1.65
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for 95% confidence level, the samples you need to get is 204.18 or 205
computed as follows:
𝑛 = 204.18
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In gathering the data, there are a lot of possible ways and tools that
are available. Data gathering could be through observation, distribution of
the questionnaires, conduct of one-on-one interviews, and focus group
discussions.
Other that the demand, supply must also be gathered from the
research. In this context, supply does not only refer to the resources
available but on the providers of the demand. Existence of the suppliers
for the demand requirement either directly competing or alternative to the
product or service will also impact the revenue and penetration in the
market. This also includes identification of the barriers to enter the market.
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The difference between when demand is larger than the supply
then there is a demand gap. The demand gap should be taken as the
opportunity to penetrate the market without competing with the existing
players. If the supply is equal or greater than demand, there will be more
challenge for the organization. This means that the market is saturated
already. In this situation a more comprehensive and strategic marketing
approach should be employed and designed.
Pricing
In setting the price, what is important is that you can set it to cover the
costs including the cost to finance the development and operations. There are a
lot of ways to determine that price. Although we can limit them into three pricing
strategies. Price can be cost driven, market driven, or customer driven.
(Marketing-Isider, 2020). The price is the value of the product or service that the
customer is willing to pay in exchange.
Full cost recovery pricing is the most ideal for businesses. When
full cost is considered in the picture, the seller effectively charging their
customers with the total cost to produce including the selling and
administrative efforts of the company and their cost of financing the
required expenses. Normally this is called as the cost-plus because the
approach is determining the full cost plus a certain margin that would
compensate the seller’s initial financing and investment efforts. Cost
driven pricing is normally effective for monopoly type of industry.
Price can also be based on the market especially if there are price
leaders in the market. Normally the challenge for the firms is to maintain
their costs to remain competitive in the price set in the market. The price is
set and dictated by the market. The market driven pricing is normally
dependent on the:
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(1) availability of resources
Customer Driven
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Read
• Books and literatures related to Marketing, Product Development, Demand and
Supply Analysis
• Market Aspect or Market Study of Feasibility Study
Activities / Assessments
• Prepare a marketing proposal on a product or service include the assessment on
the risks and challenges in the marketing of the product or service.
• Prepare a survey questionnaire that will enable you to assess the product or
service.
• Prepare a Sales Budget based on the results of the survey.
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Module 3. Technical, Operational and Production Analysis
Overview
The technical plan of the business plays a very important role for this serves as
the blue print on how the products will be produced or services will be delivered. In the
absence of the plan, it will be more challenging for the business to assess and set
direction. The technical plan is used as the primary benchmark whether the company
delivered based on the design and concept of the business.
Module Objectives
At the end of the module the students, particularly BSA and BSMAs, should:
• Develop the Technical Aspect of the Business Feasibility Study
• Identify the risks involved in the technical aspect of the Business Feasibility Study
based on the emerging issues, innovations and trends
Course Materials
In analyzing the business in terms of their technical plan, you must understand
first how technical plans were created. A technical plan varies depending on the type of
product and service being offered in the market. Normally the technical plan must be
developed with a consultation or involvement of a subject matter expert. Not all
practitioners are subject mater experts. These are talents with extensive experience and
understanding of a specific task, function, process, structure, particular science or
technology. (Reh, 2020). These people gain their stature through an extensive
experience and exposure practicing their formal education. In order to distinguish a
subject matter expert, the Endurance Learning suggested the following aspects to be
considered:
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• Understands interrelation of domains
• Demonstrate work quality
The need of a subject matter expert or SME is essential in the development and
assessment of the development of a product or deliver of a service. It is a practice that
businesses procure SMEs to aid them in looking into how to develop or execute their
business.
In the procurement of the applicable the cost is normally not an issue except if there
are budgetary restriction. Given that SMEs’ capabilities are normally challenging since
these hard to determine and vouch on. Usually the reference for the SMEs are referrals,
professional credentials, literary or documented outputs, conferences and past
deliverables.
Current trends in the industry also is the technology and innovations employed in the
product or the rendering of services. Types of technologies and innovations that can be
rendered would depend on the object of innovation:
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strategies and sustaining the Enterprise in the attainment of its goals and
fulfilling its mission.
• Social and Environmental innovation are more focused on how to improve
or benefit the society, primarily its focus is to address pressing concerns of
the society normally health issues, pollution, poverty, cultural diversity etc.
While it is not fully proven yet that the ISO certification really contributes or drives
business results or performance, it creates psychological attraction to the public,
consumers and clients.
• Raw materials and supplies needed. This segment will enumerate and
analyze the sources of raw materials and supplies. This includes costs of
the materials based on market prices based on reliable information
reference or at least 3 potential suppliers. This also includes logistics and
other overhead items that would be needed to ensure availability of the
raw materials and supplies required.
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• Plant and storage location and layout. This segment describes the
plant and location of the storage. The plant and storage description must
include the technical, legal and financial details.
o The technical details will include the location, size, conditional and
capacity to produce and store, area, layout, safety plan, estimated
economic or useful life, operations and maintenance expenses like
security and janitorial costs and contingency details. Plant layouts
and blueprints may also be included in this segment.
o The plant layout may be developed in coordination with experts in
architecture or engineering. The layout must be able to
demonstrate the harmony between members of the organization
and the safety plan in case of emergency or calamity.
o The legal details would include ownership of land and
improvements or leasehold provisions and covenants. This should
describe the least minimum and significant dos and don’ts in the
procurement and maintenance of the upkeep.
o The financial details should include the summary of the relevant
expenses like cost of purchasing the land, building and/or
improvements, periodic lease payments, summary of relevant
operating expenses and other financial requirements such as
advances.
• Process flows. This segment shall describe the process flows that will be
required in the development, storage, release, and disposal of all
inventory, assets and technical components of the product or services.
These process flows may be described through narratives or through
process flow charts or both. Another important part of this segment is to
enable the conduct of analysis for the controls and securities that are
needed. This segment can also facilitate the development of relevant
policies, process improvements and even the organizational structure.
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For service-oriented enterprises, it will include the processes on how to
deliver and measure the performance. This should also include
stakeholders, partners, and peers or consultants.
Intellectual Property
IAS 38 provides for the guidelines on how to account for Intangible Assets.
In the accounting standard the intangible asset must be identifiable, controllable
and of course must generate future economic benefits. Identifiability pertains to
the character of the asset that it can be separable and arises from contractual or
other legal rights, regardless of whether those rights are transferable or
separable from the entity. The probability of the benefits and the identifiability of
the costs needed to be incurred are critical in the recognition of these intangible
assets.
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• Protypes samples and short description. Full blown description and
designed should not be included in Business Feasibility Study or
business analysis to protect its proprietarily.
Read
• Books and literature in production and operations management
• Technical Aspect or Technical Study of Business Feasibility Study
Activities / Assessments
• Prepare a concept study to include both technical/operational aspect and the
market study of a new product or service include the assessment on the risks
and challenges in the marketing of the product or service.
• Prepare a summary of cost of investment for the new product or service.
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Module 4. Legal and Compliance Analysis
Overview
Products and services offered or sold in commerce must always be legal. The legal
aspect of the study will support all compliance with laws, rules and regulations that are
applicable for businesses. The design, structure and execution must be in accordance
with the laws to ensure that the benefits will be realize. Another benefit is for the analyst
to avoid the risk of non compliance and future penalties. These costs must be considered
in the calculation of the value or the returns from the project, product or service.
Nowadays, businesses find that the operating model must be designed to embody
the corporate strategy and will serve as the compass for the company in the conduct of
their operations. It acts as the framework for the enterprise to provide clear and guidance
on how they will execute business strategy. The operating model will serve as the guide
in the development of the appropriate structure to be applied in the business.
Module Objectives
At the end of the module the students, particularly BSA and BSMAs, should:
• Develop the Management and Legal Aspect of the Business Feasibility Study
• Identify the risks involved in the management and legal aspect of the Business
Feasibility Study based on the emerging issues and trends
Course Materials
Operating model is the bridge between strategy and operations (Ernst & Young
LLP, 2016). The operating model actually responds on the question “What are we
doing?”. As this converts the strategy into a more concrete and clearer version for the
enterprise to use as the guide in executing their strategies. The model must be
designed to accommodate compliance with the laws, rules and regulations set by the
government or the regulatory authority.
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• Growth in the changing market and customer demands;
• Response to the unforeseen disruption and challenges;
• Simply and smoothen organizational processes;
• Maximize the returns and benefits of the initiatives;
• Incubate and test new products, services and technologies; and
• Pivot to a more competitive business model.
In designing the operating model the following must be addressed: (1) what works
needs to be done; (2) where does the work get done?; (3) who does the work; and (4)
how do we drive better outcomes. The operating model is driven by the mission of the
company. The mission statement of the company must include the purpose or objective
including the value the company delivers. Insights of the management in decision
making, information and analysis were also essential inputs in designing a business
model. It should include the framework to be followed it setting the activities that will
drive the results coupled with the tools and people requirement to deliver. On top of
everything, the governance framework should also be included. (Kwan, Schroek, &
Kawamura, 2019)
All businesses must be registered with the Bureau of Internal Revenue (BIR).
The BIR issues revenue regulations or revenue memorandum to regulate the business
in complying with the National Internal Revenue Code. The regulations enumerate the
forms to be filled out, the timing, regularity and more importantly the cost or taxes to be
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paid. The taxes that will be due from the business would differ depending on the
structure. Usually the taxes imposed to the companies are:
• Income Taxes
• Withholding Taxes at Source
• Withholding Taxes from Compensation
• Value Added Taxes or Percentage Taxes
Aside from the BIR, companies must also be registered on the Local Government
Unit (LGU) to secure local permits, ultimately the Business Permit. Note that the
Administrative Code imposes business taxes of not more than 0.75% of the gross
receipts of the following year. The LGU also imposes charges in securing permits on fire
and safety, garbage and environmental charges etc.
Income Tax Holidays are also available to businesses particularly those pioneer
type. The holiday grant is normally from 4 years to 6 years. This is granted by the Board
of Investment. The Board of Investments requires certain reports that will allow them to
ensure the realization of the basis of the grants which includes, but not limited to the
following:
1. Annual Report
2. Self Rating Governance Scorecard
3. Report on Actual Date of Start of Commercial Operations, Initial Investments and
Employment.
• Agency of compliance
• Compliance requirement
• Description of the requirement
• Frequency of reporting or submission
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• Cost of compliance
o This includes permitting fee, administrative costs etc.
Organizational Design
The organization design is based on the process. Structure should follow the
function. The table of organization is used as a tool to represent the working
relationship, reporting, monitoring and facilitate organizational development.
The structure must be aligned with the purpose and objectives of the organization. In
each box occupies a role. Some business structure observe one person one box. Other
structures observe one box one role and provides an indicator on the number of people
will or is occupying a role. In designing the table of organization you should also be
mindful of the symbols and colors used. The symbols like dotted lines and dotted boxes
has its own meaning which are helpful in the analysis and assessment of the structure.
This tool will facilitate the assessment of the organizational complement and ability to
deliver. Roles that were not filled for the longest time may be assessed further in terms
of the need of the company or may be incorporated with the other roles in the
organization that will complement the required skills.
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Figure 1. One-box-One-Role Table of Organization
Figure 4.2
Each box occupied will be given the name of the person. If the role has no occupant or
hired it should be indicated. For this case, “Vacant” is supplied in the box. This will
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enable the analyst to understand if there are drivers of the cost reduction or the
efficiency of delivery of the requirement.
For non-corporation, non-cooperative enterprises the costs will start from the
over-all in-charge like general manager, chief operating officer etc. In the development
of the Feasibility Study, the organizational structure must be in the ideal form. The
proposal should not incorporate yet any cost efficiency strategies unless that is the
objective of the study. For corporations and cooperatives, the governance body must
be clear from the executives.
In determining the costs of the organization will depend on the total cost of all
personnel in the organization, the components of the personnel costs are the follows:
The basic salaries, wages and allowances shall consist of all costs that
represents the following:
o basic salaries for the organic personnel. You may refer the minimum wage
rates based on the releases of the Department of Labor and Employment
of the Republic. For roles with higher and specialized competency
requirements, you may check with online recruitment and professional
social media for the industry rates offered
o wages for the regular and usually rank and file employees
o allowances and de minimis benefits provided to managerial and rank and
file employees.
These costs must be calculated at most annually for the valuation and
assessment of the projected financial performance and cash flow requirements.
Note that in the Philippines, Labor Code of the Philippines, salaries are paid at
least 13 months in a year.
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Benefits and contributions are costs that the companies need to spend for
their employees as participation for the government mandated benefits such as:
There are some companies that need or is required based on the products
and services that they offer. Particularly those offering general professional
services that require specialized trainings.
Read
• Books and literature related to Ease of Doing Business in a country and Payroll
Management
• Legal and Management Aspect or Study of a Business Feasibility Study
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Activities / Assessments
• Prepare a summary of compliance requirements in order to sell a particular new
product or service in the market including the cost to comply, if any.
• Construct an operating model, organizational chart and the personnel cost
schedule per year (payroll)
• Prepare a PESTEL analysis on the new product and service and determine the
risks and challenges involve in selling and operating the new product or service.
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Module 5. Financial and Economic Analysis
Overview
The financial and economic aspects is the heart of the feasibility study. This will
provide the idea and picture to the analyst and prospective investor on how much
returns and whether it will be financially feasible to engage in this business or invest in
the creation of the new product or introduce or offer new services.
Module Objectives
At the end of the module the students, particularly BSA and BSMAs, should:
• Develop the Financial and Economic Aspect of the Business Feasibility Study
Course Materials
You may note that the risks may occur through internal or external forces, hence
it is imperative for the analyst to understand where these forces are coming from and to
determine how to control them. In the conduct and development of the analysis over the
enterprise, the analyst must consider the following:
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• Historical financial position and performance
o Liquidity Ratios.
These ratios are used to determine the company’s ability to meet its
current maturing obligations by determining the co-relationship between
the current assets and its current liabilities.
The working capital is the amount of funds used to address the day
to day requirements of the company. The net working capital is the
difference of the working capital or the current assets and the current
liabilities.
For as long as the net working capital remains to be positive the business
may be concluded as liquid because there is still excess of cash after
deducting all current liabilities from the current assets.
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Current Ratio
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
Quick Ratio
The challenge in using the current ratio is that it includes all the
current assets regardless its turn around to be liquidated meaning the
current liabilities is of course expecting cash that will enable the company
to extinguish its obligation hence the current assets which cannot easily
be converted into cash would provide a wrong signal to the assessment of
the liquidity.
The quick ratio is a tool to provide a more clearer liquidity indicator
for the company. The quick ratio excludes the component/s of the current
asset that is hard to liquidate like inventory, prepayments and other
current assets.
o Debt Management
38
Debt Management ratios or sometimes called Solvency Ratios
provide for the profile of the company on how they will address the long
term financing requirements
Debt Ratio
𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐷𝑒𝑏𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
The times interest earned ratio (TIER) provides for the ability of the
company to cover the interest expenses. The larger the TIER the more
solvent the company is. The Earnings before interest, taxes, depreciation
and amortization (EBITDA) is practically the cash earnings of the company
for the period which will be used to cover the interest expenses. With this,
the TIER should be high enough to cover for the interest and taxes.
𝐸𝐵𝐼𝑇𝐷𝐴
𝑇𝐼𝐸𝑅 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
39
ratios may entail penalties or outright demand for full payment of the
outstanding amount due or trigger any step in rights held by the creditors.
𝐸𝐵𝐼𝑇𝐷𝐴
𝐷𝑆𝐶𝑅 =
𝐷𝑒𝑏𝑡 𝑆𝑒𝑟𝑣𝑖𝑐𝑒
o Asset Management
Total Asset Turnover provides for the indication on how fast the
company can generate revenue or sales. Normally, total asset turn over is
applicable only to manufacturing business. In some cases, this is limited to
fixed assets. The fixed asset turn over is used by all types of businesses.
𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
40
Average accounts Receivable is calculated by getting the average of the
beginning and ending balances of the accounts receivable.
From the historical financial information of the company, the plans and
programs set through the company’s strategy will be expressed into financial
terms. This will facilitate the determination on whether the strategy will be
realized as beneficial. The projected plans and programs are coupled with the
assumptions of the company driven by risk. Macroeconomic factors are
considered as major drivers of the long-term plans and programs of the
company. These macroeconomic factors are as follows:
o Inflation
o Movement of the GDP or GNP
o Foreign Exchange
o Interest
41
The project plans and programs are normally coupled with the projected
revenues and expenses. This includes cash and non cash expenditures. But for
the purposes of determining the value the assessment or analysis is based on
the impact of the equity value of the company or at least the net cash flows
attributable to the project. If the equity value is deteriorating the initiative is “no
go”:
The equity value is calculated by determining the present value of the net
cash flows that arise from the initiative, projects, new service offering etc. The
equity value maybe determined by incorporating a terminal value that would
represent the net returns of the company in the infinite future or until the project,
initiative or service offering is terminated. In some cases the terminal value is
determined using the future estimated value of the asset.
Payback Period
Payback period represent for the period on which the investment will be
recouped. Payback period is the simplest capital budgeting technique. It simply
determines when the investment will be zero. If the net cash inflows are constant,
the payback period is simple the quotient of the investment and the net cash
inflows. On the other hand, the net cash inflows are varying over time. The
investment is subtracted per year until it reaches zero.
42
Net Present Value
The net present value is used to determine whether the value of all cash
that will be generated in the future today is more than the investment made in the
business. This is calculated by getting the present value of the cash flows that is
projected to be generated based on the plans and programs and discounted
using the rate that would allow the investor to be compensated for the cost of
raising financing, opportunities and risks, and by subtracting the investment
made at the inception of the period before the cash flows will be realized. The
inception period is considered as the Year Zero.
In corporate finance, the net present value that is higher than zero is
considered an acceptable project or the plans and program to be economically
feasible. However, the positive amount should be in the reasonable level given
that the projections remain to be an assumption unless it is contracted or
factored in, but it is not a full guarantee but can be a mitigation of the potential
unidentified and uncalculated risk. In the subsequent module, how these risks will
be identified, quantified and managed will be discussed thoroughly.
Internal rate of return is the indication that the cash flows generated in the
future based on the corporate strategy presented on its plans and programs less
the cash outflows made. The internal rate of return or IRR when used to discount
the future cash flows will result to the net present value to zero. Hence, the IRR
should be greater than the cost of capital or the weighted average cost needed to
raise the funds. The results of the net present value based on the combination of
IRR and WACC were presented in Table 5.1
43
The Enterprise must strategize on how to outperform their cost of capital
to ensure that their investment in Year Zero is recovered, cash flow requirements
overtime is sufficiently funded, including the cost for them to raise the funds. The
types of the IRR vary depending on where the cash flows are generated.
Corporate strategies are long term. They normally took a span of 5 years
or so. The long term financing strategy must be coupled with long term asset to
cover for the debt servicing or cost of capitalization in the long run. The financing
strategy must ensure that the EBITDA at the very least can sustain the cash
flows and avoid refinancing in the future and worse additional equity infusion. In
determining the financing structure the following must be determined:
o Fund requirement
Internal funds are accumulated over time using the excess of the
revenues and expenditures which instead of used to pay back the
investors were reinvested to exponential realize returns.
o Cost of Capital
44
The cost of capital is determined based on the share of the source
of capital on the total asset being funded. Cost of debt is normally the
least costs since it is the more stable among the sources of capital. The
cost of debt is the cost of raising financing through long term debt.
Commonly, the long-term debt took the form of bonds.
45
Scenario and Sensitivity
Once the Financial and economic model was established. Analysts conduct
scenario and sensitivity analysis. In scenario analysis, various pictures where painted
based on the base model. These pictures are combination of new set of assumptions
and of course has different results as well and allowing the client or management to
choose among the possibilities reasonably packaged.
1. Summary of Assumptions
2. Pro-forma Financial Statements
3. Calculation of Cost of Capital
4. Financial Analysis and Valuation
5. Scenarios and Sensitivities
Read
Activities / Assessments
1. Prepare a Financial and Economic Aspect or Study of a new product or service
which includes, at least the following:
o List of Financial and Economic Assumptions
o Pro-forma Financial Statements (Statement of Financial Position,
Financial Performance and Cash Flows)
o Calculation of applicable financial ratios, debt covenants and valuation of
the project
46
Module 6. Risk Assessment and Planning
Overview
Module Objectives
At the end of the module the students, particularly BSA and BSMAs, should:
2. Identify the risks in the whole business proposal and develop mitigation plan
Course Materials
ERM includes the identification of the risks within and that surrounds the
business enterprise. The enterprise must have a clear understanding and standard
definition of these risks to enable to standardize the approach should they encounter
the risk. Some companies adopt the practice of having a risk dictionary. Risk dictionary
is a summary of types of risks applicable in the enterprise. By defining them and
cascading it to the entire enterprise will enable each member of the organization to
47
identify the risk as they execute their plans and strategies. The risk definition maybe
categorized into the following:
3. Strategic Risks
Strategic risks are potential failure of the company to align its policies and
actions to the enterprise vision and when arises affects or have significant impact
to the corporate strategies, mission and objectives. Examples of these risks are
planning risks, corporate social responsibility risk, decision risks, strategic
partnership risks, vision risks, change management risks, governance risks, etc.
4. Marketing Risks
Marketing risks are potential failure for the company to properly market,
distribute and develop its product and expand its business po. Examples of these
risks are socio-political, competition, brand and reputational risk, sampling risk,
pricing risk etc.
5. Operational Risks
Operational risks are the possibility that the company will not be able to
execute according to operating model efficiently and effectively that will results to
losses, substandard quality, unstable production and service rendition etc.
Examples of this risks are supply risks, production risk, spoilage, obsolesces,
theft, technological risks etc.
6. Compliance Risks
48
7. Financial and Economic Risks
Financial and economic risks are the probability that the company will be able to
sustain its operations to meet its short and long-term financing requirements. This also
includes that ability of the company to manage their cash flows effectively and avoid
incurring additional losses and charges. Examples of this risks are macro-economic risk,
foreign exchange risk, diversification, financial planning, leverage etc.
In assessing the risks, the root cause or the source of the risk must be identified to
establish an appropriate mitigation. Each type of risk must be quantified or measured. The
measurement should practically be the target set but the organization in each area where the
risk will arise. In order to quantify the impact of risk, the perceive output will be the prize that will
be sacrifice in exchange of the risk. The impact may be positive or negative, which arise as a
result of risk occurrence.
Once the impact was determined, the next step is to determine the likelihood that the
identified risk will occur within the reasonable period. The likelihood may be classified
depending on when is the potential or perceive occurrence of the identified risk.
49
Rating Level of Impact Impact Description
The impact will occur in less than 12 months and
5 Certain
with more than 80% chance of happening
The impact will occur in less than 24 months or 2
4 Likely
years and with 50% - 80% chance of happening
The impact will occur in less than 60 months or 5
3 Possible
years and with less than 50% chance of happening.
The impact will occur in every rare situation or case
2 Unlikely and expected to occur in the next 10 years with
about 10% chance of happening
The impact will occur but it is not possible within the
1 Remote next 10 years and even the chance that this will
happen is less than 10%
Once the rating was rendered for the likelihood of occurrence. The next step is the
determination of the Inherent Risk Score or IRS. The IRS is calculated by multiplying the impact
rating and the likelihood rating.
The risk involve will be further assess and determine if this can be managed further due to the
existing corporate policies, process and systems. This is called as the Opportunities for Risk
Management Improvement or ORMI. The ORMI are suggested to be rated as follows:
Rating ORMI
1.00 No controls in place
0.80 With controls in place but are ineffective
0.60 With fairly effective controls in place but needs improvement
With highly effective controls in place, but need little
0.40
improvement
With controls in pace which are working and stands as the
0.20
industry leader.
50
The rating used for the ORMI will serve as a factor to adjust the IRS. The adjusted IRS is also
called as Residual Risk Score or RRS.
Next the RRS will be classified depending on the rating where it will fall. The Risk heat
map will describe how the risk will be managed.
Once the risk heat index was determined. The activities that needs to be
established and circulated the soonest especially when there are challenges in the
organization. The possible ways on how to manage or treat the risks. The strategies on
how manage the risk identity such as:
1. Avoid
This involves the strategy that the company will not proceed on the new
product or service that has high indication of riskiness. By not proceeding on the
activity allows that company to avoid the risk. Most risk averse investors are
geared to employ this type of transfer.
2. Transfer
51
Transferring the risk is by getting another party to absorb it in behalf of the
enterprise examples of these strategies are procuring insurance or allowing
others to pay for your risk.
3. Mitigate
Mitigate is done by installing and ensuring that there are controls in the
process to reduce the impact examples of these are segregation of duties,
revisiting the limits of authorization etc.
4. Accept
5. Exploit
Some risk analysts find that certain risks are worth exploiting to become
opportunity for the enterprise. This is the reverse approach of accept. Exploit find
new opportunities for the perceive risk. This is considered when the cost
exposure of the risk is less than the opportunity that the company would realize
when this risk occur.
The risk treatment is set and incorporated in the plans and programs of the
company. Action items were created to execute these risk treatment plans. Each action
items are given a particularly timeline and monitored periodically. Part of the monitoring
is challenging and testing the impact and likelihood of each risk indicator.
52
o Source of Risk
o Impact of Risk Rating
o Likelihood of Risk Rating
o IRS
o RRS
o Risk Treatment
o Risk Action Plan
o Target date
Read
• Books and Literature about Enterprise Risk Management
Activities / Assessments
1. Prepare a risk management plan for a new product or service offering under
Marketing, Technical or Operational, Legal and Compliance, and Financial &
Economic Aspects of the plan containing the following:
o Risk indicators identified
o Level of Impact
o Likelihood of Risk
o Risk Heat Map
o Opportunities for Risk Management Improvement
o Risk Treatment Plan (Risk Response and Action Item)
2. Prepare an adjusted summary of financial results based on the risk assessment
made
53
References
Ashwini, A. (2020, August). What digital marketing channels give the best ROI?
Corporate Finance Institute. (n.d.). PESTEL Analysis - Political, Economic, Social,
Technological, Environmental and Legal Factors. Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/strategy/pestel-
analysis/
Ernst & Young LLP. (2016). Operating Models: Delivering on Strategy and Optimizing
Processes. Ernst & Young Global Limited.
Glen, S. (2020). Probability and Statistics Topic Index. Sample Size in Statistics (How to
Find It).
International Institute of Business Analysis. (2020). A Guide to Business Analysis a
Body of Knowledge. IIBA.
Kaplan, R., & Norton, D. (1992, January). The Balanced Scorecard - Measures that
Drive Performance. Harvard Business Review.
Kenton, W., & Dury, A. (2020, September). Enterprise Risk Management (ERM).
Investopedia, pp. https://www.investopedia.com/terms/e/enterprise-risk-
management.asp.
Kwan, A., Schroek, M., & Kawamura, J. (2019). Achitechting an Operating Model to
accelerate digital transformation. Deloitte Series on Digital Industrial
Tranformation.
Marketing-Isider. (2020). Principles of Marketing Explained. Retrieved from Marketing
Insider: https://marketing-insider.eu/about-marketing-insider/
PricewaterhouseCoopers LLP. (2004). Enterprise Risk Management - Integrated
Framework Executive Summary. Committee on Sponsoring Organization of the
Treadway Commission.
Reh, J. (2020). What is A Subject Matter Expert? The Balance Careers.
Schooley, S. (2019, June 24). SWOT Analysis: What It Is and When to Use It. Strategy:
Business News Daily. Business News Daily.
Tarver, E. (2020, July 5). Balanced Scorecard. Investopedia.
54
Appendix 1: Feasibility Study Content Outline
I. Title Page
• Title of the business, product or service
• Name/names of the researcher
II. Approval Sheet
III. Acknowledgement
IV. Table of Contents
V. Executive Summary
• Introduction to the business, new product or service (this will
include the price)
• Summary of Demand Gap analysis
• Technical Specifications of the Product or Service
• Summary of Compliance Requirements
• Financial and Economic Results
• Summary of Risk Indicators and plans
• Summary of Findings, Conclusions and Recommendations
VI. Market Aspect
• Product Description
• Demand – Supply Gap Analysis
• Price
• Marketing Strategies
VII. Technical & Production Aspect (Technical and Operational
Aspect if merchandising and service)
• Technical (product or service) Specifications
• Resource Requirement (raw materials, technology support
etc.)
• Plant and Storage Location and Layout
• Process Flows Description
• Intellectual Property (if any)
VIII. Management and Legal Aspect
• Assessment of the Organization Structure (Sole
Proprietorship vs Partnership vs Corporation vs Cooperative)
• Table of Organization
• Summary of Personnel Costing
• Summary of Compliance Requirements
IX. Financial and Economic Aspect
• Summary of Assumptions
• Pro-forma Financial Statements
• Data Financial Key Results
o Selected financial ratios
55
o Valuation (NPV, IRR, Payback)
X. Risk Management Plan
• Risk Indicators / Factors
• Risk Description
• Source of Risk
• Residual Risk Score (provide breakdown of Inherent Risk
Score and ORMI)
• Risk Treatment Plan
• Action Plan
XI. Appendices
56
Republic of the Philippines
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES
Office of the Vice President for Academic Affairs
COLLEGE OF ACCOUNTANCY & FINANCE
COURSE : This course deals with identifying the different needs of businesses, with a thorough analysis of its internal and external
DESCRIPTION environments, and developing innovative solutions which are aligned to the enterprise strategy, expectations and needs of the
business. It includes analysis and interpretation of accounting data as aids in managerial decision-making process, balanced
scorecard, performance evaluation, and responsibility accounting. This will equip the students the knowledge and techniques in
understanding the organization and industry, assessing risks, develop alternative solutions and choosing the most feasible one,
and preparing a business case.
1. Creative and Critical Thinking Students must be able to incorporate the factors and risks Upon completion of the course, the students
Graduates use their imaginative as well as a rational thinking that affects in doing business and/or a product or service will be able to:
ability to life situations in order push boundaries, realize through development of a business feasibility study
possibilities, and deepen their interdisciplinary and general a. Apply the techniques in analyzing all
understanding of the world. areas of the business and its
financial impact
2. Effective Communication Students must be able to communicate the operating model, b. Assess the risks driven by micro and
Graduates are proficient in the four macro skills in communication risks and results to a panel on oral examination macroeconomic factors, issues and
(reading, writing, listening, and speaking) and are able to use trends, surrounding the business
these skills in solving problems, making decisions, and environment.
Institutional Learning Outcomes Programs Outcomes Course Outcomes
articulating thoughts when engaging with people in various c. Develop their own Business
circumstances. Feasibility Study concentrating on
the financial aspect
3. Strong Service Orientation Students must demonstrate ability to provide quality
Graduates exemplify the potentialities of an efficient, well- consultative services through the business feasibility studies
rounded and responsible professional deeply committed to developed
service excellence.
5. Adeptness in the Responsible Use of Technology Students must know how to the use of technology and
Graduates demonstrate optimized use of digital learning abilities, innovation in gathering relevant information and developing
including technical and numerical skills. business feasibility studies
6. Passion to Life-Long Learning Students must show eagerness in conducting research and
Graduates are enabled to perform and function in the society by being abreast with the current trends, innovations and issues
taking responsibility in their quest to know more about the world in the industry.
through lifelong learning.
7. High Level of Leadership and Organization Skills Students are expected to be management consultants in the
Graduates are developed to become the best professionals in future in assessing the business and analyzing the gaps,
their respective disciplines by manifesting the appropriate skills risks and challenges that would aid the clients’ growth.
and leadership qualities.
8. Sense of Personal and Professional Ethics Students must demonstrate a capable management
Graduates show desirable attitudes and behavior either in their consultant and will affect the client’s top or senior
personal and professional circumstances. management long term decision.
9. Sense of Nationalism and Global Responsiveness Students must participate through contributing the skills
Graduates’ deep sense of national compliments the need to live earned by allowing them to be part of contributors of growth
in a global village where one’s culture and other people culture in the industry through the provision of business analytics
are respected. and relevant report
WEEK RESOURCES/
TOPIC LEARNING OUTCOMES METHODLOGIES ASSESSMENT
NO. REFERENCES
Class Management The learner will be to: • Lecture and discussion • Copy of the syllabus • Summary of student reflection
• Manage expectation by • Student handbook and expectation
1 • Introduction to the course • Have an appreciation of the sharing insights of the • Elect class officers, prepare
• Discussion of the syllabus coverage of the course instructor and the students seat plan.
• Classroom policies • Establish order in the class
Review on areas related to After the session the student is • Lecture Textbooks • Recitation
strategic business analysis expected to: • Activities • Presentation
Instructional Materials
• Balanced Scorecard • Discuss the areas related to
Online references
• PESTEL and SWOT Analysis strategic business analysis
• Performance Evaluation • Develop a case problem on the
• Responsbility Accounting current business trends and issues
1 • Risk Assessment emerged in business accounting
Introduction to Business After the session, the learner must: • Lecture Textbooks • Recitation
Feasibility Study • Activity • Presentation
• Discuss the importance of business Instructional Materials
• Importance of Business feasibility study
Online references
Feasibility Study • Enumerate the parts and identify
• Parts of Business Feasibility the information needed to be used
Study to develop each part
1 o Executive Summary
o Market Aspect
o Technical Aspect
o Management and Legal
Aspect
o Financial and Economic
Aspect
o Risk Management Strategy
Development of the Market After the session, the learner must: • Lecture Textbooks • Presentation of the Market
Aspect • Market Research Aspect
• Develop the Market Aspect of the • Consultation Instructional Materials
• Product or Service Business Feasibility Study
Online references
Development • Identify the risks involved in the
2-4 • Market Environment Analysis development of product/service,
o Demand Modelling price, place and promotion based
o Supply Analysis including on the emerging issues and trends
Industry Scanning and
competition
• Pricing
• Disbution and Sales Strategy
Development of Technical After the session, the learner must: • Lecture Textbooks • Presentation of the Technical
Aspect • Technical Research Aspect
• Develop the Technical Aspect of the • Consultation Instructional Materials
• Operating Model Business Feasibility Study
• Production and Operating Online references
• Identify the risks involved in the
5-7 Requirements technical aspect of the Business
• Procurement of Technical Feasibility Study based on the
Experts emerging issues, innovations and
trends
Development of Management After the session, the learner must: • Lecture Textbooks • Presentation of the
and Legal Aspect • Research Management and Legal
• Develop the Management and • Consultation Instructional Materials Study
• Organizational Design Legal Aspect of the Business
• Development of Feasibility Study Online references
9-10
Compensation Structure • Identify the risks involved in the
• Identifying relevant laws, management and legal aspect of
rules and regulations to the the Business Feasibility Study
business based on the emerging issues and
trends
Development of Financial and After the session, the learner must: • Lecture Textbooks • Presentation of the Financial
Economic Aspect • Research and Economic Aspect
• Develop the Financial and • Consultation Instructional Materials • Presentation of the Risk
Economic Aspect of the Business Management Strategy
11 – 12 Online references
Feasibility Study
Development of Risk
• Identify the risks in the whole
Management Strategy for the
business proposal and develop
business
mitigation plan
13 DEFENDING THE RESULTS OF THE BUSINESS FEASIBILITY STUDY
13
• CIRC HF 4521 S73 2015, Brailsford, Tim, Investments: Concepts and Application, 2015
• CIRC HF 4026 B75 2013, Brigham, Eugene F., Fundamentals of Financial Management, 2013
• CIRC HF 4026 R826 2015, Ross, Stephen A., Financial Management: principles and applications, 2015
• Gitman Lawrence J. and Zutter, Chad J., Principles of Managerial Finance, 13th edition. 2012
GRADING SYSTEM
Class Standing 50%
Participation in the Activities 40%
Attendance, right conduct 10%
Defense of the Study 50%
Total 100%
The allowed number of absences for students enrolled in ACCO 20913 with once-a-week meeting is three (3). Request for excused absences or waiver of absences must be
presented upon reporting back to class. It is the responsibility of the student to monitor his/her own tardy incidents and absences that might accumulate leading to a grade of “FA,”
(Failed due to Absences). It is also his/her responsibility to consult with the teacher, chair or dean should his/her case be of special nature.
ACADEMIC HONESTY
All BSA and BSMA students are expected to be academically honest. Cheating, lying and other forms of immoral and unethical behavior will not be tolerated. Any student found
guilty of cheating or has participated in relevant illicit actions in the development of the study will (at a minimum) receive a grade of 5.0 in the final rating.
Recommending Approval:
Approved by: