Module 4 - Feasibility Analysis

PECBE 001 – ENTREPRENEURIAL MANAGEMENT
MODULE 4 – FEASIBILITY ANALYSIS
Introduction
The idea assessment, feasibility study, business model, business plan, and strategic plan all play
important but separate roles in the start-up and growth of an entrepreneurial venture. This module
describes the idea feasibility study. In the final module, we shall examine how to craft a business plan
to guide the start-up of a new business and the strategic planning process that helps navigate the
business growth.
Intended Learning Outcomes
At the end of the module, you can:
1. organize data needed in a feasibility analysis;

2. write the four components of a feasibility study, namely, market, production or technical;
organizational or management and financial feasibility analysis; and
3. decide on the feasibility of a business idea
Topics
1. Definition of Feasibility Analysis

2. Market Feasibility Analysis
3. Production/Technical Feasibility Analysis
4. Organizational/management Feasibility Analysis
5. Financial Feasibility Analysis
Let us now begin the discussion.
Definition of Feasibility Analysis
After conducting the idea assessment, an entrepreneur scrutinizes the idea further through feasibility
analysis. A feasibility analysis consists of four interrelated components: an industry and market
feasibility analysis, a product or service feasibility analysis, a financial feasibility analysis, and an
organizational or entrepreneur feasibility analysis.
Feasibility analysis is the process of determining if a business idea is viable. If a business idea falls
short on one or more of the four components of feasibility analysis, it should be dropped or rethought.
Many entrepreneurs mistake identifying a business idea and then jumping directly to developing a
business plan to describe and gain support for the idea. This sequence often omits or provides little
time for the important step of testing the feasibility of a business idea.
It should be emphasized that while a feasibility analysis tests the merits of a specific idea, it allows
ample opportunity for the idea to be revised, altered, and changed as a result of the feedback obtained
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and the analysis conducted. The key objective behind feasibility analysis is to put an idea to the test—
by eliciting feedback from potential customers, talking to industry experts, studying industry trends,
thinking through the financials, and scrutinizing it in other ways. These types of activities not only
help determine whether an idea is feasible but also help shape and mold the idea. Sometimes, it will
be decided that the idea is not feasible. Although regrettable, it is better to know early rather than
later if an idea doesn’t have sufficient merit to become a business.
Now let’s turn our attention to the four areas of feasibility analysis.
Market Feasibility
This portion of the study gives a thorough description of the industry related to the product or service
you want to produce. The purpose is to fully know and get detailed information about the market to
devise plans and strategies to establish a market share. The outcome of this study is sometimes
sufficient to decide whether to make a “first try” or a “first attempt” to continue with the feasibility
study or not. Gathering the necessary information that will give you a thorough description of the
industry where your product or services belong requires conducting market research.
Market Research
A MARKET RESEARCH is simply a means of acquiring accurate and reliable information about your
market. It uses one or more tools (or instruments) to gather market information. The tools may
involve research tools: such as survey questionnaires, interview guides, and the like. It may also
acquire information through media outlets, advertisements, the internet, and people who are also
engaged in a similar line of business, as well as interviews with “experts.”
At times information is acquired through one’s gut feeling or instinct, especially if the market
research will involve one’s immediate community, where familiarity with the information is handy.
Using one’s gut feeling as a means of acquiring information should, however, be avoided as much as
possible; they are difficult to substantiate.
Because a feasibility study starts with several assumptions committed on paper, as much as
possible, these assumptions must be very realistic; more or less, they should be very close to
real-world situations. The more realistic your assumptions are, the more objective you will be
in evaluating the potential risk for failure and success of your proposed business undertakings.
Your feasibility should try to “capture” a snapshot picture of the various factors that will get
involved in the business and other factors that may become an obstacle in the future. Acquiring
such information may require you to conduct Market Research.
If you cannot get your information accurately and reliably through market research, then most
probably, the business idea is not viable. Suppose your market research and analysis cannot
substantiate and support your information. Any analysis and conclusions you will arrive at will
also be unsubstantiated and, therefore, unreliable as a basis for making a business decision.
When planning to do market research, you must carefully balance the cost of the research, the
accuracy and reliability of the information you have to collect, and of course, the time. It is
possible to have very accurate and reliable market research that is not expensive but will give
you unreliable and not-so-accurate information. You may have accurate and reliable
information, but they are expensive. You may have expensive, accurate, and reliable information,
but because of the time element in their collection, they are no longer reliable. When undertaking
market research, you must consider the cost, accuracy, reliability, and time it takes to collect the
information.
It would be effective and efficient on your part to collect as much information as possible that
you need when you are conducting market research. This would mean that you have to identify
beforehand the information items that you will need in your market, organizational, technical,
and financial feasibility, and then combine them into one survey (so that it will become a feasibility
survey).
Type of information to be gathered
Before you conduct your feasibility survey, you have to decide on the different types of
information that you will need. Some of this information can be obtained freely, such as by
looking for it on the internet, going to the library, or asking somebody. In some cases, the
information you will need will entail some cost, such as conducting a “taste test” or hiring people
to conduct the survey for you.
Market research is interested in five major types of information in the market, as follows:
1. Market information – nature of the market, type and kind of buyers/customers, competitors
in the market, pricing system, methods of distribution and marketing, etc.
2. Production/Technical Information – sources and costs of raw materials, machinery and

equipment, production methods, etc.
3. Organization and Manpower Information – sources and skills needed and available for
manpower resources, standard salary, fringe benefits, etc.
4. Financial Information – sources of capital (and associated risks.), credit available from
financial institutions, interest rate, etc.
5. Government Programs, Policies, and Regulations (local, provincial, national) that affect your
business; government programs that offer financial and technical assistance to your
business, especially if it is a new business
It would help if you remembered that not all of the above items must be included in your feasibility
survey. Include only those important items that will impact your feasibility; the above serves only
as a general guide.
It is even possible to subdivide your feasibility survey into two portions. The first portion will
involve acquiring information as a “first test” to decide for a “make or break” decision on your
feasibility study. This will generally be the financial aspect of your survey. Should the data
gathered in the first portion suggest a very small profit margin, you might not as well continue
with the second portion and altogether abandon the idea. In some cases, the technical feasibility
will serve as a decisive factor.
However, suppose your initial survey does suggest that the profit margin is large. In that case,
this suggests that it might be worth pursuing and proceeding and conducting the second phase
of the survey to further the details of the study.
Sources of Information
Before preparing your feasibility survey, you should know how to ask the right question.
Knowing how to ask the right question will shorten your survey, give you accurate and reliable
information, and reduce the time to conduct the survey. So, where will you get the information
guiding you to ask the right questions?
1. Reading in the library

2. Using the Internet
3. Asking persons in authority
4. Interviewing people knowledgeable about the industry
5. From Television
6. Through Internet chatting
7. Through discussions
8. Through interviews
9. From local shopkeepers
10. From local sellers
General Questions to be Asked in the Market Research
Having decided the kinds of questions you will be asking, and you will need to formulate the
feasibility survey that will provide you with an accurate and reliable answer. Below are some
general questions you will be asking yourself that might help you prepare your feasibility survey.
The questions are details based on the ten broad areas classified above and do not necessarily
be of the same order as in the feasibility survey (How the questions are to be arranged and
validated is the area of survey design. For our purpose, we will presume that we have a proper
survey tool).
1. Questions about the Market
1.1 Questions about the demand
a. What is the size of the demand for my product/service?

b. Is there a possibility of increasing the demand for my product/service?
c. Is the demand for my product or service seasonal?
d. Could I create a demand (such as promotion or advertising for my product?
1.2 Questions about the customers/buyers:
a. What are the characteristics or socio-economic status of my customers in terms of:
a.1 age group (kids, youth, young adults, adults, senior citizens)
a.2 gender (male or female)
a.3 income status or social bracket (Category A, B, C, D, or E)
b. What is my customer’s buying behavior

c. What are the available choices for my customers?
d. Where do they purchase the commodity, and why?
e. What type of facilities does my customer get from the local shopkeeper?
1.3 Questions about the supply:
a. How many sellers are in the market similar to my product or service?

b. Is there sufficient supply or quantity being sold in the market similar to my product?
1.4 Questions about the competition:
a. Who are my competitors?

b. Where are my competitors?
c. How many competitors do I have?
d. Who are their customers?
e. What is the quantity of their goods and services?
f. What is the size of their market? Where are they?
g. What are the incentives being given by my competitors (in terms of warranty, quantity, discounts,
and quality)?
h. Where is their monopoly area?
i. Where do they collect their raw materials?
j. What types of equipment do they use?
k. What kind of media do they use for advertising?
l. What are the weaknesses of my competitors’ products and the competitors themselves?
1.5 Questions about the price:
a. What is the prevailing market price similar to my product?

b. What pricing method is adopted (cost-plus, discount, psychological, competitive, etc.)?
c. Is the price for my product seasonal? What months are the price high and months that the
price is low?
1.6 Questions about the channels of distribution:
a. What are the existing marketing methods of distribution?

b. What are marketing channels available?
c. What are the buying and selling procedures?
2. Questions about the production/technology:
2.1 Questions about your raw materials:
a. What type of raw materials do I need?

b. Where are the sources of my raw materials?
c. What is/is the price of my raw materials?
d. Do my raw materials require storage facilities to preserve them?
e. Is there a risk in handling my raw materials? How could they be handled?
f. What transportation methods are available for getting my raw materials?
2.2 Questions about machinery and equipment:
a. What kind of machinery do I need?

b. How much is the price of the machinery? How much will it cost?
c. What are the cheapest suppliers for my machinery?
d. Would there be a need for maintenance after sales?
e. Are there power supplies? In what forms?
f. How long can the machinery be used (Life span)?
g. Would the supplier offer a warranty? How long?
h. What are the dimensions of the machinery/ equipment?
2.3 Questions about the business location:
a. What are the available locations for my business?

b. What are the costs (rental purchase)?
c. Where will be the best location for my business?
d. Is there an available utility supply (electricity, power), skilled labor, and raw materials? Is it
accessible by transportation?
3. Questions about organization
3.1 Questions about manpower resources:
a. What type of employees do I need?

b. How many employees would I need?
c. How many wages should I pay my employees? What is the prevailing salary level in the
locality? In the Industry?
d. What are the facilities needed by my employees?
e. How would I recruit/hire my employees? What would be my recruitment and selection
process?
f. What would be the responsibilities of my employees?
4. Questions about Financing
4.1 Questions about the capital and its associated risk:
a. How much money would I need?

b. What are my possible sources of credit?
c. What are the prevailing interest rates for loans/credit?
d. Aside from credit, where, who, and how will I get additional capital? What are the terms and
conditions?
e. In what months or years in my business operation will I need credit? How much?
5. Questions about government programs and policies
5.1 Questions about government programs:
a. What government programs are available for my kind of business?

b. What is the assistance given in terms of financing and technology?
c. What government agencies are involved?
d. What are the requirements to avail of the program?
5.2 Questions about government policies and regulations:
a. What existing government policies and regulations affect my business (local, provincial, or
national)?
b. What are the governing marketing and production rules and regulations?
Most of the information you have gathered through the market research will be used to complete
the four components of a market feasibility study.
Components of Market Feasibility Analysis
1. Market description a brief description of the market to describe the buyers and users of the
product/ service and the areas of dispersion. See Sample write-up 1 below:
Business Idea: Egg Production
Market Description
Interviews from 3 egg producers in Zamboanga City indicate that buyers and users of eggs in
Zamboanga City are broken down as shown below:
A. Intermediate Buyers – buyers who buy eggs in volume and sell them for retail, commonly
in trays (with one tray having a capacity of 30 eggs).
1. Wholesalers - are buyers who buy directly from the egg producer in volume. Of the seven
egg wholesalers in Zamboanga City interviewed, their average weekly sale is 20.8 trays,
with an average minimum of 18 trays and an average maximum of 23.6 trays. Of the 7
wholesalers in Zamboanga City, all require that the eggs be delivered to their outlets by the
local egg producers. Furthermore, the 7 wholesalers are located inside a circle whose
radius is approximately two kilometers, except for one establishment located at a distance
of approximately 5 kilometers from the center.
2. Retailers – these are buyers who buy eggs in small quantities and resell them in “sari-sari”
stores. Retailers also require that the eggs be delivered directly to their “sari-sari.” Interviews
with 20 random samples “sari-sari” stores show that an average of 2.3 trays per week is sold,
with a minimum average of 1.5 and a maximum average of 3 trays per week.
B. Institutional Buyers/ Users are buyers who buy in bulk and end users.
1. Institutional buyers (hotels, restaurants, bakeries, and catering) also require that the eggs
be delivered directly to their establishments by the egg producers themselves. Institutional
buyers vary in their buying patterns, as shown in Table 1.
One should note in the above table that the household sector could have either bought their
eggs from wholesalers or retailers.
The large difference between the minimum and maximum trays sold per week by the
catering services/ houses arises due to the nature of their services, which is highly
dependent on the occurrence of special occasions.
An ocular survey by the proponents indicates that the various institutional buyers of eggs
in Zamboanga City are widely dispersed. The hotels and restaurants are located within
approximately a circle with a radius of 5 kilometers from their center. Bakeries and
catering services are very widely dispersed, extending from the City's East to the West
Coast.
2. Households – households are buyers who are end users themselves. They buy their eggs
mainly from the “sari-sari” stores. Data from the survey of 100 randomly sampled houses
indicate that an average family size of 5 consumes an average of 0.15 trays of eggs per week.
Table 1. Interview data were obtained from 116 respondents on their weekly egg buying and
using patterns.
Egg buyers and Sampl Average Minimum Maximu Trays per Average
users e size Trays average m year @ 48 egg
sold/wee trays/wee average weeks/yea consumed
k k trays/ r per year
week
1. Intermediat
e buyers:
a. Wholesalers 7 20.8 18 23.6 24,960 748,800

b. Retailers 20 2.3 1.5 3 448,200 13,446,00
0
Total 27 23.05 19.5 26.6 473,160 14,194,80

0
2. Institutional buyers/users
a. Hotels 3 8.9 5.7 12.1 2,990 89,712
b. Restaurants 5 8.3 6.3 10.3 3,984 119,520
c. Bakeries 5 13.3 12 14.5 11,448 343,440
d. Catering 3 6.0 5 7 1,440 43,200
3. Household 100 0.15 0.1 0.2 1,224,183 36,725,48
users 6
TOTAL 116 36.6 29.1 44.1 1,244,045 37,321,35
8
The flow of egg produced until it reaches the end user is shown in the figure below:
2. Demand – data about the past five years' consumption, major product users, and projected
consumption for the next five years. A sample of the write-up on demand is shown below:
Demand
Data on egg consumption in Zamboanga City by the various egg buyers and users for the past
5 years is unavailable. However, projections can be made by assuming that egg consumption
will proportionately increase with the population increase in Zamboanga City.
An egg is one important source of protein for human diets; hence any increase in population
will likewise increase the demand for eggs.
At present, projections by the Statistics Bureau indicate that the population growth rate in
Zamboanga City is 7.2% per year, with Zamboanga City having 170,025 households at an
average 5 heads per household. On this assumption, the demand situation for eggs in
Zamboanga City for the next five years is shown below:
Table 2. Five-Year Projected Demand by Household Egg Users in Zamboanga City
Egg No of Average % Year

buyer house- egg increa
s and holds consume se per
2010 2011 2012 2013 2014
users d per year
year
Hous
e- 170,02 36,725,4 39,369,7 42,204,3 45,243,0 48,500,5 51,992,5
7.20%
hold 5 86 21 41 54 54 94
users
Demands created by the retailers were projected based on the information provided by DTI.
Their data indicate that there are 830 new entrant retailers (including “sari-sari” stores every
year, with an operation period that lasts on an average of 5 years. This information indicates
that 5 years ago up to the present, the number of new entrants will total 4150 (= 5 x 830). The
projected demand that the new entrants will create is shown in Table 3.
Table 3. Demand Projects for Egg by Retailers in Zamboanga City
Egg No of Average % Year

buyers hous egg increa
and e- consume se per
2010 2011 2012 2013 2014
users holds d per year
year
Retaile 13,446,0 14,414,1 15,451,9 16,564,4 17,757,1 19,035,6
4,150 7.20%
rs 00 12 28 67 09 20
The 7.2% increase in demand was also used on hotels, bakeries, restaurants, and caterings to
arrive at a five-year projected demand. The results are summarized below:
Table 4. A Summary of the Five-Year Demand Projection for the Different Buyers and Users of
Eggs in Zamboanga City
Egg buyers Average % Year

and users egg increas
2010 2011 2012 2013 2014
consume
d per e per
year year
1. Intermediate Buyers
Wholesalers 748,800 7.20% 802,714 860,509 922,466 988,883 1,060083
Retailers 13,446,0 14,414,1 15,451,9 16,564,4 17,757,1 19,035,6
7.20%
00 12 28 67 09 20
2. Institutional Buyers/Users
Hotels 89,712 7.20% 96,171 103,096 110,518 118,476 127,006
Restaurants 119,520 7.20% 128,125 137,350 147,240 157,841 169,206
Bakeries 343,440 7.20% 368,168 394,676 423,092 453,555 486,211
Catering 43,200 7.20% 46,310 49,645 53,219 57,051 61,159
3. Househo 36,725,4 39,369,7 42,204,3 45,243,0 48,500,5 51,992,5
7.20%
ld users 86 21 41 54 54 94
Total 37,321,3 40,008,4 42,889,1 45,977,1 49,287,4 52,836,1
58 96 08 24 77 75
GRAND 51,516,1 55,227,3 59,203,5 63,466,0 68,035,4 72,933,8
TOTAL 58 32 56 68 81 92
The above projection was substantiated through further interviews with egg producers
regarding their experience and their projections on the industry. They believe the above
assumption is justifiable, and the resulting projection is close enough to what they anticipate
for the next five years.
However, the Grand total in the above table should be interpreted with caution. The
relationship of the intermediate buyers with the household users, as shown in Table 4suggests
that satisfying the demand of the intermediate buyers will have the consequent effect of
decreasing the demands by the households on the producers.
In cases where data and information are not available to make projections, making assumptions
becomes unavoidable: reality imposes its limitations. However, should assumptions be made, it
either has to be a rough estimate that has to be accurately verified later on before the end of the
study, or it is an assumption that you will have to justify as a basis for projecting.
In this portion of the study, the methods by which the projections were made must be made
clear, for each method has its own advantages and disadvantages. Several statistical tools are
available for making reliable projections; linear regression is one such tool. A much simpler
approach would be to use graphing paper and a ruler. A common approach is to use the mean (or
the average) as used in Sample Table 3.
3. Supply – data about the product or services being provided by other businesses engaged in
the same industry for the past five years (broken down as to source, whether imported or
locally produced); projected supply situation for the next five years; and the factor affecting
trends in the past and future supply. A sample is shown below:
Supply
Data from the Agriculture Bureau regarding egg producers in Zamboanga City
provided the information shown below:
Table 5. Average and Total Volume of Eggs Produced by the Major Egg Producers in Zamboanga
City
Number of producers 12
Average distance from Zamboanga City Hall (in km) 19.75
Average years in operation 5.4
Average number of layers maintained per year 9,333
Average number of eggs produced per year 2,775,200
Combined volume of eggs produced per year 33,302,400
The above information suggests that since the amount of eggs sold by the intermediate buyers
who buy directly from the producers has an average of 14,194,800 eggs per year (see Write-
up Table 4), the remaining combined volume produced per year must have been directed to
the institutional buyers/users and the households. The combined demand caused by the
institutional users has an average of 595,872 eggs per year, with the remainder of 18,511,728
(=33,302,400 14,194,800 595,872) being sold directly to the households. The remainder
constitutes 55.5% (={18,511,728/33,302,400} x 100) of the total average volume of eggs
produced by the major suppliers in a year.
Of the 12 major egg suppliers in Zamboanga City, only 3 are obliged to supply the
proponent with information regarding their egg production volume for the last five years.
Table 6. Volume of Egg Production for the last Five Years of Three Major Egg Suppliers in
Zamboanga City
Year
S/N Name 2004 2005 2006 2007 2008
1 2 3 4 5
1 Ritchie’s Egg Farm 2,401,920 2,419,200 2,409,600 2,400,480 2,448,000
2 Miller Farm 2,280,000 196,0800 1,965,600 2,414,400 2,736,000
3 BOA Farm 2,688,00 2,352,000 2,496,000 2,376,000 2,409,600
Total 7,369,920 6,732,000 6,871,200 7,190,880 7,593,600
Average 2,456,640 2,244,000 2,290,400 2,396,960 2,531,200
A simple average is used to determine the projected supply situation based on the
records of the three major egg suppliers. It is done as follows;
1. Compute the difference in the totals between two succeeding years, starting from the
earliest years to the next year. Thus the first computation will involve years 2004 and 2005
and equals -212, 640 (= 2,244,000 and 2,456,640). The resulting computations for the other
years are shown below;
Year 2004 2005 2006 2007 2008

Index 1 2 3 4 5
Total Eggs 2,456,640 2,244,000 2,290,400 2,396,960 2,531,200
produced/year
Difference -212,640 46,400 106,560 134,240
% Change
from the -8.65 2.07 4.65 5.67
previous year
Average %
change per 0.935
year
2. Compute the % change from the previous year as follows:
% change form previous year = (-212,640/2,456,640) x 100 = -8.65
Then do the same procedure for the other years
3. Compute the average % change per year as follows:
Average % change per year = [(-8.65) + (2.07) + (4.65 + (5.67)] /4 = 0.935%
An average of 0.9935% suggests that the supply of eggs from the major egg producers of
Zamboanga City will increase by as much as 1 per 100 eggs per year.
Having determined the rate by which the supply of egg increases, the projected supply situation
be as shown below:
Table 7. Five-year Supply Projection for Zamboanga City
Average Year
Volume of
Eggs
2010 2011 2012 2013 2014
Produced per
year (pcs)
33,302,400 33,613,777 33,928,066 34,245,294 34,565,487 34,888,674
4. Competition – analyzed in terms of the number of similar businesses you want to engage in;
the prevailing prices; quality of the product; methods of transportation and current rate;
channels of distribution; and a description of the existing marketing practices of competitors.
A sample is shown below:
Competition
Competitors: Egg Producer
There are 12 major egg producers in Zamboanga City (see Write-up Table 3). For the year
2008 alone, they supplied Zamboanga City with 33,302,400 eggs. Their average year in
operation is 5.5 years, and they are situated at an average distance of 19.9 km from the City
proper. The major producers of eggs in Zamboanga City who have been producing eggs longer
than 5.5 years most presumably have already established good business relationships with
the intermediate buyers and the institutional egg user. Likewise, the same can be said for the
new entrants in egg production who have already been in the business for 3 to 4 years.
Considering that the new entrants to the business are already operating on an average of
9333 heads of layers per year, they must have very good connections in the distribution
channel to venture into egg production.
The above discussion suggests a high potential for failure if the venture's target focuses on the
intermediate and institutional markets as its buyers. On the other hand, the risk potential for
failure will be lower if the main target market is household buyers.
Competitors: Intermediate Buyers
The intermediate buyers serve as a direct outlet for egg produce; hence, they are also
competitors. Their strength lies in having good business relationships with the egg producers
and attracting customers due to the variety of products they sell. At any given time, they
entertain many customers; selling eggs to their customers either in trays or in dozens is also
their strength.
The intermediate buyers absorb only 42.62 % (=14,194,800/33,302,400), while the

institutional buyers absorb only 1.19% (= 638775//33,302,400) of the total volume of eggs
produced in the City.
Based on personal interviews with the egg producers' supervisors, all major egg producers
grade their eggs into three classes: small, medium, and large. Producers' prices for small eggs
range from 3.50 to 3.75 pesos; the medium grade is priced from 3.75- 4.00 pesos, while large
grades are priced from 4.00- 4.25 pesos.
From the same interview, 4 of the 12 producers unload 2 to 3% of their eggs to institutional
buyers, using vans, directly through prior contracts at discounted prices. Forty-two to forty-
four per cent (42 to 44%) are unloaded to the intermediate buyers. The remaining produce of
the egg producers is sold to direct retailers within their immediate community.
The above discussion suggests that for the proposed venture to be competitive with the
intermediate buyers market, the proposed undertaking will have to produce eggs equal to or
lower than the price schedule offered by the competitive egg producers.
5. Proposed Marketing Program – a description of the product’s characteristics; description of the

proposed target market, proposed price and pricing system, packaging, a channel of
distribution, and promotional activities. A sample is shown below:
Proposed Marketing Program
The product.
The egg, particularly chicken egg, is rich in nitrogenous elements. It is one of the most highly
concentrated forms of nitrogenous food, with about one-third of its weight being solid
nutrients. It is also confirmed to have a low-calorie source of protein, Vitamin A, riboflavin,
Vitamin B-12, iron, zinc, phosphorus, calcium, potassium, and other nutrients.
The average weight of an egg is about two ounces (or approximately 37.7 gm), of which 10%
consists of a shell, 60% white, and 30% yolk.
Table egg is commonly consumed as viand. It is also an ingredient for desserts like pastries,
cookies, pies, cakes, and others. It is sometimes processed into "itlog na maalat" or salted egg.
It is also effective in some beauty regimens. In a recent North Carolina State University study,
eggs may be the next protein source for drugs, creating a specialty market for farmers who
can produce eggs specifically for drug companies. (Source; http//.www.rcbral@bar.gov.ph).
Grading of Eggs
National grading standards for eggs sold are according to size; small, medium, large, extra
large, and assorted or unclassified. Farm gate prices in 2002 and 2003 were 35.76 and
37.48 pesos per dozen, respectively (2.98 and 3.12 pesos per piece, respectively). (Source;
http//.www.rcbral@bar.gov.ph)
Grading can be advantageous in two ways; grading in terms of appearance can be

advantageous where the target clientele purchases in bulk and where appearance does not
matter, such as among institutional buyers. Grading in terms of appearance is advantageous
where households belonging to the upper segments of society are willing to pay the price for
eggs with good appearance (such as the egg being ovate, white, and clean).
This undertaking will grade eggs as follows; AA, A, AB, B, BC, and CC. With AA being in the
heaviest category and class, CC will be in the lightest range. This will effectively subdivide the
existing retail price range of 4.75 to 5.50 pesos into 6 ranges, as shown below;
Class Price Range

CC Belo 4.75
w
C 4.75 4.88
BC 4.88 5.00
B 5.00 5.13
AB 5.13 5.25
A 5.25 5.38
AA 5.48 5.50
Target Market
Targeting the institutional users and wholesalers will expose the venture to a high potential
for failure. However, focusing on household egg consumers, a good marketing strategy, and an
efficient production process will lower the risk of failure.
With 6 ranges of price categories, flexibility in giving discounts to buyers becomes easy.
Packaging
Packaging of the eggs will involve using egg trays that can carry 30 and 12 eggs a tray.
Awareness of the existence of the product will be achieved by using the light green colored
tray. Cell phone and telephone numbers will be imprinted on each tray to facilitate calls for re-
delivery at any time. Thirty egg trays will cost 2.00 pesos for each tray package and 1.00 pesos
for a 12 egg tray.
Marketing Channels
Involve the establishment of an intermediate “bodega” strategically located within the City
proper. Fifty percent of the weekly produced will be delivered to the “bodega.” Calls for
delivery can be immediately responded to, and re-delivery can immediately be done. Delivery
from the “bodega” to the caller will be done through “sikad-sikad.” Delivery from the farm to
the “bodega” will be through small vans. Likewise, delivery from the “bodega” to retailers
located within the vicinity of the “bodega” will also be done through the use of the “sikad-
sikad.”
Alternative marketing channels will be utilized. Retailers within the farm's vicinity will
likewise use the “sikad-sikad” as the primary mode of transporting the eggs from the farm to
the retailer.
Production/Technical Feasibility Analysis
This portion discusses the product (quality, chemical composition, materials used, etc.), the
process and technology for its production, the raw materials used, etc. Specifically, under these
components are the following:
1. Product/Service Description – product/service specification, material/chemical properties,

and quality. A sample write-up is shown below:
Business Idea: Black Pepper Production
Product Description
Black pepper is a perennial vine plant producing berry-like and aromatic, pungent fruit. It is
locally known as “pamienta” or “paminta.” Leaves are thick and green with an ovate shape.
Flowers are white, produce fruits when unripe, and become red at maturity. The fruiting
stage of the plant occurs three years from its initial planting date. When dried, the fruits
shrink and may be sold as dried black pepper or partially grounded to produce cracked black
or white pepper when finely ground.
2. Production Process – description of the process and technology used indicating material,
equipment, and energy requirements at each step (can be indicated in a flow chart). A sample is
shown below:
Production Process
Black pepper is transplanted in plowed and harrowed land at the start of the rainy season.
Because of their vine characteristics, their growth is guided by planting them beside a post
(“kakawate” or “made cacao”) so that they will grow upwards and the number of hills that
can be planted will be maximized. Transplanting is done during the rainy season to take
advantage of the additional moisture.
Routine management practices (application of fertilizers, control of pests and disease,

pruning) for the cultivation of black pepper are followed while they are in the growing stage.
At the fruiting stage, berry-like fruits will appear and mature in 5- 6 months when the berry-
like fruits turn to cherry red. The fruits are manually harvested on sunny days. Open baskets
or sacks are used as containers tied to the waist of the harvester. Production of black pepper
is shown by the flow chart below;
Figure 1. Flow process in the production of Black Pepper
3. Plant Size and Production Schedule - rated annual/ monthly/ weekly or daily capacity,
operating days per year, expected production volume for the next five years considering
start-up and technical factors. A sample write-up is shown below:
Plant Size and Production Schedule

Ten hectares of land will be apportioned for the production of black pepper. At a spacing of
250 cm between posts, 3,000 seedlings are needed per hectare or a total of 32,000 seedlings
and 16,000 posts. Maintenance of the seedlings will be a year-round operation. The plant, at
maturity, will start producing in its third year. Harvesting, drying, and grinding will be
additional activities from the third year onward. Production activities are shown in the
diagram below:
Year of Operation Estimated Yield (in kilograms)

Year 1 0
Year 2 0
Year 3 32,000
Year 4 51,200
Year 5 64,000
4. Machine and Equipment – lists of machinery/equipment to be purchased with their

corresponding prices, machinery, and equipment layout (floor plan). A sample write-up is shown
below:
Machinery and Equipment
The proposed project will be acquiring the following machinery and equipment
Table 8. Machinery and Equipment for the Proposed Black Pepper Production
Machinery and Purchase Cost Life span (in years) Depreciation

Equipment
Tractor 1,500,000 10 150,000
Mechanical Drier 520,000 15 52,000
Farm Tools 103,000 10 10,300
Delivery Truck 800,000 10 80,000
Pulverizer 70,000 10 7,000
Drip irrigation system 1,800,000 15 120,000
Grinder 57,000 10 5,700
5. Plant/Business Locations – the desirability of location about the sources of raw materials,
markets, labor, and other factors. A sample write-up is shown below:
Plant/Business Locations
The proposed business will be located in Barangay, Zamboanga city. It is approximately 25

kilometers from the city proper. A total of 13 hectares will be developed for the proposed
project. Water facilities are available and will be drawn from a nearby river. Adequate
transportation is also available. In fact, 70% of the road from the proposed site to the city
proper is fully concreted. (Note that this portion needs a location map). Farm labors are
readily available in the area. The site is well drained, and the soil is suitable for producing
black pepper (Much better if a map from the Bureau of Soils is included here).
6. Building and Facilities – type (s) of building and cost of construction, floor area, land
improvements such as road, drainage, etc., and their respective cost. A sample write-up is shown
below:
Building and Facilities
The proponent will spend a total of 5,920,000 on constructing the buildings and land
improvements. The table below shows the estimated expenses for buildings and land
improvements. (Note that this portion of the study requires that the floor plans and the layout
of the farm site should be attached as an Appendix).
Table 9. Estimated Expenses: Buildings and Land Improvement
Particulars Capacity Amount

1. Irrigation system 400 l/min 1,800,000
2. Concrete water tank 36,000 gal 1,200,000
3. Barbed wire fencing 500 m 1,200,000
and concrete posts
4. Storage building 300 cu. m 820,000
5. Workers living quarter 70 sq. m 900,000
Total 5,920,000
7. Plant Layout – description of the plant/business layout, drawn to scale. A sample write-up is
shown below:
Plant Layout
A scaled layout of the farm, as well as the various buildings for the project, is included in
the Appendix. (Note that this layout should be drawn to scale and attached as an Appendix for
reference).
8. Raw materials – current and prospective costs, availability, continuity of supply, current and
prospective sources. A sample write-up is shown below:
Raw Materials
The raw materials used in producing black pepper will include fertilizers, fungicides and
weedicides, and plastic bags. The raw material requirements and their costing are shown
below:
Raw Materials Cost Remarks

Fertilizers 800 per bag Readily available for purchase at the City
Fungicides 500 per bottle Readily available for purchase at the City
Weedicides 500 per bottle Readily available for purchase at the City
9. Utilities – electricity, fuel, and water supplies indicating the uses, quantity required, availability,
sources, and costs. A sample write-up is shown below:
Utilities
Table 10. Electricity, Fuel, and Water Consumption
Utilities Uses Quantity Unit Cost Availability Sources

Water Irrigation 36,000 gal/ 1.5 pesos per To be pumped Nearby river
irrigation gallon from a nearby
(pumping river
cost)
Fuel Tractor and 400 liters per 38 pesos per To be The gasoline
hauling operation liter purchased station is
operation using drum located 20
containers km away
Electricity Grinding and 5,000 kW/ 5.50 PER Kw- Through The local
lighting month hr electrical electric
distribution power
lines company
10. Waster Disposal – description of the waste disposal method and the cost involved. A sample
write-up is shown below:
Waste Disposal
All wastes expected from the project are organic. All organic waste materials will be converted
into compost. Compost-making will entail a cost of labor for maintenance. The composted
material will be used as soil amendments, and the resulting benefits of the soil amendments
will not be reflected as savings or income. The labor cost for compost maintenance is expected
to be approximately 200 per month.
11. Production Cost – a detailed breakdown of the production costs involving direct and indirect
materials, direct and indirect labor, and manufacturing overhead.
Production Cost
Organizational/Management Feasibility Analysis
This portion discusses the structure of the business organization and the justification for such a
structure. It discusses the duties and functions of the different positions in the structure. A
sample write-up is shown below:
1. Business Structure – describes the legal structure of a company that influence the day-to-day
operations of a business (CFI Team, 2022)
Business Structure
Partnership is the proponents’ form of business ownership because each of the proponents will
contribute in the business capital. Partnership means that the business is owned by two or more
persons who contribute money or capital, talent or industry with the intention of dividing the
profits among themselves.
The proponents decided to utilize a partnership form of business organization because it is a good
choice of legal structure for a new business. Being a partnership, the business owners necessarily
share the profits, the liabilities and the decision making. Some of the significant characteristics of
a partnership type of business in the Philippines are first is it has limited life which it may be
dissolved or its operations terminated either by the acts of partners or by the operation of law and
the second significant characteristic of partnership is that it is based on contracts because it is
created by virtue of a contract entered into by the partners. While at times it is necessary that the
contract be in writing and that its terms are specifically expressed.
2. Manpower Requirement - enumerates the responsibilities of the various positions needed for
the business to operate.
Manpower Requirement
1. Job Title: General Manager. Responsible for the whole organization and the business
operation. He is also responsible for the following functions:
 Must see to it in carrying out or handling the business's day-to-day operations.

 Must plan out various developments for maximum profitability of the business.
 Must render wise decisions for the changes and improvements of the business operation.
 Must assure every customer that they can produce the quality products they need.
2. Job Title: Assistant Manager. He is responsible for monitoring the whole operation of the
business, particularly when about administrative matters. He is responsible for the
following matters:
 Attending training for business development, particularly when the General Manager is not
present.
 Must see to it that the company is complying with the BIR(Bureau of Internal Revenue)
requirements and, with that, the municipal ordinances
 Must see to it that each section of the business is doing good.
 Must arrange meetings, seminars, etc.
3. Job Title: Production Supervisor. He is responsible for supervising the production workers
in the whole process of production and maintenance of the area. He also approves or edits
the original design from the business or personalized design from the customers.
4. Job Title: Artist. He is responsible for the designs. He makes the designs of the shirts for
each company.
5. Job Title: Production Workers. They are responsible for transferring the designs to the
computer, printing the shirt, drying, and packaging the products. They deal with the whole
process of producing the best paint-designed computer-printed shirts.
6. Job Title: Maintenance. Maintenance personnel is responsible for maintaining the

cleanliness of the area. They ensure that the whole place is clean every day after work. They
also stay in the business location and guard the place at night.
7. Job Title: Sales Supervisor. The sales supervisor is responsible for the marketing and
delivery of the product. He is in charge of dealing with the customers.
8. Job Title: Sales Representative. Sale representative is in charge of finding potential

customers and is responsible for constant dealings with the customers.
9. Job Title: Delivery boy. He is responsible for all the deliveries accompanied by the driver.
10. Job Title: Driver. The driver is responsible for transferring the employees from the business
location to the customer. He also accompanies the delivery boy and the personnel
purchasing the production materials.
11. Job Title: Office Supervisor. He is responsible for supervising the office work. He manages
the accountant and the clerk in the office.
12. Job Title: Accountant. He is responsible for all the financial aspects of the business.
13. Job Title: Clerk. The clerk serves as an assistant in all the office work.
3. Organizationa Chart – illustrates the relationship between the positions enumerated in the
manpower requirements to visualize how work flows within a business.
Organizational Chart
General Manager
Supervisor
Sales Production
Assistant Worker
4. Salaries and Fringe Benefits - describes the costs involved (salaries, fringe benefits, etc.). A
sample write-up is shown below:
Salaries and Fringe Benefits
Table 11. Salaries and Fringe Benefits for the First Year of Operation
Table 12. Project Salaries and Fringe Benefirts for Five Years
Financial Feasibility Analysis
The financial feasibility study determines the amount of money required to realize the project:
the financing sources and the cost involved. This portion addresses money matters for the
project, how much the project needs, how such financial requirements will be raised, and how
soon the money invested can be earned and recouped. This aspect is a very crucial component
of the feasibility study. This portion, however, requires an understanding of basic concepts from
accounting.
Basic Accounting Concepts
Balance Sheet
A balance sheet is a financial statement that shows the financial position of an enterprise as of a
particular date. It consists of three (3) sections: Assets, Liabilities, and Owner’s equity.
Income Statement
An Income Statement is a financial statement that shows the enterprise's financial performance
for a given period. This performance is primarily measured in terms of the income/ profit earned
through the efficient utilization of its resources, Net Income, or Net loss.
Cash Flow Statement
A Cash flow Statement is a financial statement that provides information about cash inflows
(Receipts or sources of cash) and cash outflows (Payments or Uses of cash) of the business for a
given period. Cash inflows are money transactions that go into the business, while cash outflows
are cash transactions that go out of the business. Non-cash transactions are not included in the
statements.
At the bottom of the statement is the cash balance for a given period. The cash balance is the
difference between the Cash Receipts/Sources and the Cash payments/Uses.
Lending institutions use the Projected Cash Flow Statement to determine the paying capability
of the business in some future period.
It is also used by the business to determine in what period or month the business is in short
supply of cash or large excess of cash. In this manner, the business can project when to borrow
and what amount of cash to use in its operation.
Financial Feasibility Analysis Components
Major Assumptions
This portion presents all the major assumptions of the project and includes the following:
1. The projected volume of production of the project for five to ten years
2. Projected demand and sales revenue of the project considering the volume of sales per period
and the projected price per period
3. Projected production cost, including the depreciation per period of the building, facilities,
machines, and equipment; labor costs; material costs; manufacturing overhead costs
4. Labor costs refer to the number of employees and the salary and benefits paid.
5. Material costs pertain to the costs of raw materials and all other materials used in production
6. Manufacturing overhead refers to the costs of electricity and water, and all other
manufacturing costs not classified as labor or material
7. Projected non-manufacturing costs like administrative expenses, selling, and marketing
costs
8. (From the abovementioned costs, fixed and variable costs can be determined per unit or total
cost basis. Variable costs are costs that vary with the level of production, while fixed costs
are costs that do not vary with the level of production)
9. Projected interest rate per period
10. Pre-operating expenses or organizational expenses that include registration fees, notarial
costs, and all other costs in the establishment of the project
Projected Financial Statements
Projected financial statements generally cover the first five years or more. In a business plan, the
financial projections are prepared every quarter for the first year, where assumptions are still
reliable and yearly for subsequent years.
Summary
In this module, we have learned that feasibility analysis is conducted to determine whether the
entrepreneur can transform the idea into a viable business. The role of the feasibility analysis is to
serve as a filter, screening out ideas that lack the business potential a successful business before an
entrepreneur commits the necessary resources to develop and build a business plan. In the final
module, we shall discuss the business plan.
References
Barringer, B. R., & Ireland, R. D. (2022). Entrepreneurship: Successfully Launching New Ventures
(6th Edition). United Kingdom: Pearson Education Limited
Cada Jr, L. F. C. J. (2021). ENTREPRENEURSHIP POTENTIALS AMONG SELECTED FILIPINO

PROFESSIONALS. In Global Conference on Business and Management Proceedings (Vol. 1, No. 1, pp.
123-132).
Fanolera, D. (2009). Feasibility Study, Project Proposal, and Business Plan. Western Mindanao
State University
Longenecker, J. G., Petty, J. W., Palich, L. E., & Hoy, F. (2017) Small Business Management:
Launching and Growing Entrepreneurial Ventures (18th Edition). USA: Cengage Learning.
Scarborough, N. M., & Cornwall, J. R. (2016). Essentials of Entrepreneurship and Small Business
Management (8th Edition). England: Pearson Education Limited.
Appendix A
SAMPLE PRODUCT SURVEY
1. What do you like best about this product? Show a picture of the prototype product with its
labeling and packaging details.
2. What do you like least about this product? Show a picture of the prototype product with its
labeling and packaging details.
3. Why did you make that selection in item 1 and item 2
4. What is your first reaction to the product?
____ Very positive

____ Somewhat positive
____ Neutral
____ Somewhat negative
____ Very negative
5. How would you rate the quality of the product?
____ Very high quality

____ High Quality
____ Neither high nor low quality
____ Low quality
____ Very low quality
6. How innovative is the product?
____ Extremely innovative

____ Very innovative
____ Somewhat innovative
____ Not so innovative

____ Not at all innovative
7. When you think about the product, do you think of it as something you need or don’t need?
8. How would you rate the value for money of the product?
____ Excellent
____ Above average
____ Average
____ Below Average
____ Poor
9. If the product were available today, how likely would you be to buy the product?
____ extremely likely

____ very likely
____ somewhat likely
____ not so likely
____ not at all likely
10. How likely are you to replace your current product with the product?
____ extremely likely

____ very likely
____ somewhat likely
____ not so likely
____ not at all likely
11. How likely would you recommend our new product to a friend or colleague? (please check)
0 1 2 3 4 5 6 7 8 9 10
Not at all likely Extremely likely
12. In your own words, what are the things you like most about this new product?
13. In your own words, what are the things that you would most like to improve in this new
product?
Thank you.
Appendix B
SAMPLE SERVICE SURVEY
1. What is your first reaction to the service?
____ Very positive

____ Somewhat positive
____ Neutral
____ Somewhat negative
____ Very negative
2. How would you rate the quality of the service?
____ Very high quality

____ High quality
____ Neither high nor low quality
____ Low quality
____ Very low quality
3. How innovative is the service?
____ Extremely innovative

____ Very innovative
____ Somewhat innovative
____ Not so innovative
____ Not at all innovative
4. When you think about the service, do you think of it as something you need or don’t need?
____ Definitely need

____ Probably need
____ Neutral
____ Probably don’t need
____ Definitely don’t need
5. How would you rate the value for money of the service?
____ Excellent
____ Above average
____ Average
____ Below Average
____ Poor
6. How likely would you be to buy the service if the service were available today?
____ Extremely likely

____ Very likely
____ Somewhat likely
____ Not so likely
____ Not at all likely
7. How likely are you to replace your current service with the service?
____ Extremely likely

____ Very likely
____ Somewhat likely
____ Not so likely
____ Not at all likely
8. How likely would you recommend our new service to a friend or colleague?
0 1 2 3 4 5 6 7 8 9 10
Not at all likely Extremely likely
9. In your own words, what are the things that you like most about this new service?
10. In your own words, what are the things that you would most like to improve in this new service?
Thank you.

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PECBE 001 – ENTREPRENEURIAL MANAGEMENT

MODULE 4 – FEASIBILITY ANALYSIS

Intended Learning Outcomes

At the end of the module, you can:

1. organize data needed in a feasibility analysis;

1. Definition of Feasibility Analysis

Let us now begin the discussion.

Definition of Feasibility Analysis

Type of information to be gathered

2. Production/Technical Information – sources and costs of raw materials, machinery and

1. Reading in the library

General Questions to be Asked in the Market Research

1.1 Questions about the demand

a. What is the size of the demand for my product/service?

1.2 Questions about the customers/buyers:

a. What are the characteristics or socio-economic status of my customers in terms of:

b. What is my customer’s buying behavior

1.3 Questions about the supply:

a. How many sellers are in the market similar to my product or service?

1.4 Questions about the competition:

a. Who are my competitors?

1.5 Questions about the price:

a. What is the prevailing market price similar to my product?

1.6 Questions about the channels of distribution:

a. What are the existing marketing methods of distribution?

2. Questions about the production/technology:

2.1 Questions about your raw materials:

a. What type of raw materials do I need?

2.2 Questions about machinery and equipment:

a. What kind of machinery do I need?

2.3 Questions about the business location:

a. What are the available locations for my business?

3. Questions about organization

3.1 Questions about manpower resources:

a. What type of employees do I need?

4. Questions about Financing

4.1 Questions about the capital and its associated risk:

a. How much money would I need?

5. Questions about government programs and policies

5.1 Questions about government programs:

a. What government programs are available for my kind of business?

5.2 Questions about government policies and regulations:

Components of Market Feasibility Analysis

Business Idea: Egg Production

a. Wholesalers 7 20.8 18 23.6 24,960 748,800

Total 27 23.05 19.5 26.6 473,160 14,194,80

Table 2. Five-Year Projected Demand by Household Egg Users in Zamboanga City

Egg No of Average % Year

Table 3. Demand Projects for Egg by Retailers in Zamboanga City

Egg No of Average % Year

Egg buyers Average % Year

Year 2004 2005 2006 2007 2008

2. Compute the % change from the previous year as follows:

% change form previous year = (-212,640/2,456,640) x 100 = -8.65

Then do the same procedure for the other years

3. Compute the average % change per year as follows:

Average % change per year = [(-8.65) + (2.07) + (4.65 + (5.67)] /4 = 0.935%

Table 7. Five-year Supply Projection for Zamboanga City

Competitors: Egg Producer

Competitors: Intermediate Buyers

The intermediate buyers absorb only 42.62 % (=14,194,800/33,302,400), while the

5. Proposed Marketing Program – a description of the product’s characteristics; description of the

Proposed Marketing Program

Grading can be advantageous in two ways; grading in terms of appearance can be