COVENANT UNIVERSITY

FEASIBILTY STUDIES

EDS 411 TERM PAPER

TERM PAPER PREPARED BY (Architecture Students)
 ATUNDE HEPHZIBAH – 09CA09930
 DAINI AYOTOLA – 09CA09935
 FASANYE STEPHEN – 09CA09943
 MAHA JOSHUA – 09CA09953
 OYELOLA OLUWATOBI – 09CA09976
BRIEF OVERVIEW

 DEFINITION OF FEASIBILITY STUDY

 IMPORTANCE OF A FEASIBILITY STUDY
 THE BUSINESS PLAN AND THE FEASIBILITY STUDY
 DEFINITION AND FUNCTION OF A BUSINESS PLAN
 COMPONENTS OF A FEASIBILITY STUDY
 QUESTIONS ASKED BY THE COMPONENETS OF A FEASIBILITY STUDY
 MARKET VIABILITY
 TECHNICAL VIABILITY
 ORGANIZATIONAL VIABILITY
 PRODUCT OR SERVICE VIABILITY
 STRUCTURAL OUTLINE OF A BUSINESS FEASIBILITY
STUDY
 PRODUCT/SERVICE
 TECHNOLOGY
 INTENDED MARKET ENVIRONMENT
 COMPETITION
 INDUSTRY
 BUSINESS MODEL
 MARKETING AND SALES STRATEGY
 PRODUCTION/OPERATING REQUIREMENTS
 MANAGEMENT AND PERSONNEL
 INTELLECTUAL PROPERTY
 REGULATIONS/ENVIRONMENTAL ISSUES
 CRITICAL RISK FACTORS
 START-UP SCHEDULE
 FINANCIAL PROJECTIONS
 CAPITAL REQUIREMENTS
 FINAL FINDINGS AND RECOMMENDATIONS
 REFERENCES
DEFINITION
A feasibility study can be defined as a controlled process for identifying problems and
opportunities, determining objectives, describing situations, defining successful outcomes
and assessing the range of costs and benefits associated with several alternatives for
solving a problem. The business feasibility study is used to assist the decision-making
process based on a cost benefit analysis of the actual business or project viability. The
feasibility study is carried out during the deliberation phase of the business development
cycle prior to initiation of a formal business plan. It is an analytical tool that includes
recommendations and limitations, which are utilised to aid the decision-makers when
determining if the business concept is viable.

It is basically an analysis of the viability of an idea. The feasibility study is directed towards
answering the question “should we proceed with the proposed project idea”. It is a first
step in exploring a new business idea. It can be instrumental in flushing out a business idea,
as well as determining if further investment into the idea is warranted. A well-rounded
feasibility study can serve as a solid foundation for a full-fledged business plan. The
possibility of a feasibility study is to determine if a business opportunity is possible,
practical, and viable.

Feasibility studies aim to objectively and rationally uncover the strengths and weaknesses
of an existing business or proposed venture, opportunities and threats as presented by the
environment, the resources required to carry through, and ultimately the prospects for
success. In its simplest terms, the two criteria to judge feasibility are cost required and
value to be attained.

A feasibility study addresses things like where and how the business will operate, it
provides in depth details about the business to determine if and how it can succeed, and
serve as a valuable tool for developing a winning business plan.
A feasible business venture is one where the business will generate adequate cash flow and
profits, withstand the risks it will encounter, remain viable in the long term and meet the
goals of the founders. As such, a well-designed feasibility study should provide a historical
background of the business or project, description of the product or service, accounting
statements, details of the operations and management, marketing research and policies,
financial data, legal requirements and tax obligations.

REASONS AND IMPORTANCE OF A FEASIBLITY

STUDY
A feasibility study serves as a solid foundation for developing a good and viable
business plan that will serve the test of time.

 A feasibility study enables owners of business ventures to take a realistic look at

both the positive and negative aspects of the opportunity. Many optimistic persons
tend to focus on only its positive aspects.
 A financial feasibility study projects how much start-up capital is needed, sources of
capital, returns on investment, and other financial considerations. It looks at how
much cash is needed, where it will come from, and how it will be spent.
 An Organizational Feasibility Study may also include professional background
information about the founders and principals of the business and what skills they
can contribute to the business. Description of Your Business Structure Description
of Your Organizational Structure Internal and External Principles and Practices of
the Business Professional Skills and Resumes.
 A good business plan helps to develop marketing strategies to convince a financier
which could either be a bank or investor that your business is worth considering as
an investment.
 For a great business plan it serves as a way to find a cost-effective way to market
and sell your products and services. This is especially important for store-front
retail businesses where location could make or break your business.
  When a feasibility study is carried out it objectively and rationally uncover the
strengths and weaknesses of an existing business or proposed venture,
opportunities and identifies threats as presented by the environment, plus it
provides information about all the resources required to carry the business through,
the prospects for success.

A proper feasibility study would also help the business owner (entrepreneur) identify the
following:

 if the business idea is viable or not (i.e. whether it would yield profit or not)

 the useful facts and figures that may assist him in critical and proper decision-
making

 It reveals to the entrepreneur alternative approaches and solutions to putting his or

her idea into practical use, leading in a sense to more avenues for creativity and
innovation.

 The feasibility study aids the entrepreneur in creating a structure and organization
for specific business scenarios so they can be studied in-depth and adequately
prepared for in advance.
 A good feasibility study usually gives the entrepreneur a holistic view of his
economic and market environment. This in turn makes him more aware of the risks,
benefits, happenings and their implications on his new venture.

 The feasibility study helps the entrepreneur establish a balance between the risks
and rewards of moving forward with the business project.
 The feasibility study helps to narrow the scope of the project to identify the best
business scenario(s)
 From a feasibility study important information that helps shape a good business
plan is gathered.
 By carrying feasibility study and entrepreneur is able to give focus to the project and
outline alternatives for the project at hand.
 Now, although a feasibility study shows the entrepreneur different business
alternatives, it also helps him/her rule out some of these alternatives thus tactfully
narrowing the business options.
 Through an investigative process, the feasibility study is an excellent tool for
discovering other hidden business opportunities and customer needs.
 A good feasibility study would always give the entrepreneur the vital information
required to identify reasons to proceed or not with a particular business venture or
innovation.
 Enhances the probability of success by addressing and mitigating factors early on
that could affect the project.
 Provides the entrepreneur with quality information for good decision making.
 It could be used as a document to show that the business venture was thoroughly
investigated.
 Helps in securing funding from lending institutions and other monetary sources.
 Another importance of a feasibility study is that it helps to attract equity investment.
 A feasibility study primarily is an investigative tool. It is designed to give an
entrepreneur a picture of the market, sales, and profit potential of a particular
business idea.
 A business plan builds on the foundation of the feasibility study but provides a
more comprehensive analysis than a feasibility study. As such it should be done as
accurately as possible.
 The information gathered from a feasibility study would help list in detail all the
things required to make the business work effectively.
 The information helps the entrepreneur Identify logistical any other business-
related problems and solutions that may be used to solve them.
 Whenever an entrepreneur carries out a proper feasibility study, he is able to create
a well thought out market strategy, which in turn goes a long way in convincing a
bank or investor that the business is worth considering as an investment and would
yield forth much positive fruit.
  A good feasibility serves as a solid foundation for developing an awesome business
plan and ultimately a successful business brand.
Although the first ingredient for a successful business venture is an idea, even if the
entrepreneur were to have the greatest business idea, he would still have to find the most
cost-effective way to market and sell his products and services.

THE BUSINESS PLAN AND THE FEASIBILTY STUDY

The feasibility study is not a business plan. The separate roles of the feasibility study and
the business plan are frequently misunderstood. The feasibility study provides an
investigating function. It addresses the question of “is this a viable venture?” The business
plan provides a planning function. The business plan outlines the actions needed to take
the proposal from “idea” to “reality”.

The feasibility study outlines and analyses several alternatives or methods of achieving
business success. The feasibility study helps to narrow the scope of the project to identify
the best business scenario(s). The business plan deals with only one alternative or
scenario. The feasibility study helps to narrow the scope of the project to identify and
define two or three scenarios or alternatives. The person or business conducting the
feasibility study may work with the group to identify the “best” alternative for their
situation. This becomes the basis for the business plan.

The feasibility study is conducted before the business plan. A business plan is prepared
only after the business venture has been deemed to be feasible. If a proposed business
venture is considered to be feasible, a business plan is usually constructed next that
provides a “roadmap” of how the business will be created and developed. The business
plan provides the “blueprint” for project implementation. If the venture is deemed not to be
feasible, efforts may be made to correct its deficiencies, other alternatives may be explored,
or the idea is dropped.
A Feasibility Study serves as a vetting process for a hypothetical business idea. It serves to
give the prospective business owner a realistic view of the overall market, how different
business models may work within that market, and, at its conclusion, provides an early
opportunity to exit from an unrealistic business venture. In contrast, a Business Plan puts
ideas into action. A Business Plan is a working document that provides a three-to-five year
roadmap.

DEFINITION AND FUNCTION OF A BUSINESS PLAN

Anyentrepreneur who is in business or is about to launch a business needs a well-
conceived and factually based business plan to increase the likelihood of success. For
decades, research has proven that companies that engage in business planning outperform
those that do not. Unfortunately, studies also show that small companies are especially
lackadaisical in their approach to developing business plans. Many entrepreneurs never
take the time to develop plans for their businesses; unfortunately, the implications of the
lack of planning are all too evident in the high failure rates that small companies
experience.

A business planis a written summary of an entrepreneur’s proposed business venture, its

operational and financial details, its marketing opportunities and strategy, and its
managers’skills and abilities. There is no substitute for a well-prepared business plan,
andthere are no shortcuts to creating one. The plan serves as an entrepreneur’s road map
on the journey toward building a successful business. It describes the direction the
company is taking, what its goals are, where it wants to be, and how it’s going to get there.
The plan is written proof that an entrepreneur has performed the necessary research, has
studied the business opportunity adequately, and is prepared to capitalize on it with a
sound business model. In short, a business plan is an entrepreneur’s best insurance against
launching a business destined to fail or mismanaging a potentially successful company.

A business plan serves three essential functions. First and most important, it guides an
entrepreneur by charting the company’s future course of action and devising a strategy for
success. The plan provides a battery of tools—a mission statement, goals, objectives,
market analysis, budgets, financial forecasts, target markets, and strategies—to help
entrepreneurs lead a company successfully. It gives managers and employees a sense of
direction, but only if everyone is involved in creating, updating, or altering it. As more team
members become committed to making the plan work, the plan takes on special meaning. It
gives everyone targets to shoot for, and it provides a yardstick for measuring actual
performance against those targets, especially in the crucial and chaotic start-up phase.
Creating a plan also forces entrepreneurs to subject their ideas to the test of reality. Can
this business idea actually produce a profit?

The second function of the business plan is to attract lenders and investors. Too often
small business owners approach potential lenders and investors without having prepared
to sell themselves and their business concept. Simply scribbling a few rough figures on a
note pad to support a loan application is not enough. Applying for loans or attempting to
attract investors without a solid business plan rarely attracts needed capital. Rather, the
best way to secure the necessary capital is to prepare a sound business plan, which enables
an entrepreneur to communicate to potential lenders and investors the potential the
business opportunity offers. Entrepreneurs must pay attention to details because they are
germane to their sales presentations to potential lenders and investors. The quality of the
firm’s business plan weighs heavily in the decision to lend or invest funds. It is also
potential lenders’ and investors’ first impression of the company and its managers.
Therefore, the finished product should be highly polished and professional in both form
and content.

A business plan must prove to potential lenders and investors that a venture will be able to
repay loans and produce an attractive rate of return.
COMPONENTS OF A FEASIBILITY STUDY
The components of a feasibility study vary according from book to book, journals etc. The
components of a feasibility study aid in a proper study carried out to find out how viable or
profitable a business is. The components of a feasibility study are meant to;

1. Securing human resources

2. Indicate how viable a business is.
3. Helps the entrepreneur in choosing viable and profitable business.
4. Helps creditors.
5. To determine how attractive an industry is overall as a home for a new business
6. To find possible niches a business can occupy profitably

QUESTIONS ASKED BY THE COMPONENTS OF A FEASIBILITY

STUDIES

Questions frequently asked about feasibility studies are mainly aimed at resources.
Thesequestions are:

1. Is this an effective way to safe guard against wastage of further investment?

2. Is this an effective way to safe guard against wastage of further resources?
3. Does the feasibility study aid the business plan efficiently?
4. Does the research and information uncovered in the feasibility study aid the
business planning stage?
5. Does the research and information uncovered in the feasibility study aid efficiency
by reducing research time?
6. Is the viability analysis thorough enough to provide an abundance of information
that is necessary for the business plan?
7. Does this determine the business concept’s feasibility?
8. Does this information provide the market section of the business plan?
9. Does this information contain clear supporting information for its recommendation?
 The components of feasibility studies aid in giving the functions and a business plan,
feasibility study it and answers all the questions posed above.

The components of the feasibility study are listed below:

1. Market viability.
2. Technical viability
3. Organizational feasibility.
4. Product or service feasibility
5. Economic and financial model viability.
6. Exit strategy viability.

MARKET VIABILITY

This component includes a description of the industry, its current market, competition,
sales projections, potential buyers anticipated future market potential buyers, etcetera. For
example; the market viability can be tested thus: if the company starting business, has a
great advantage over other companies and the industry where it is based in- for example,
food industry, where the company supplies frozen chicken to the eateries around it need
that company and would not terminate the deal with that company except there is a better
deal or there is another good they can substitute the chicken for. All this makes the market
competitive and interesting and as Robert Kiyosaki said, ‘’only those with the right
information will survive’’. This tells us here that any company that wants to pass the
market viability test should be innovative,, competitive and have the right information, so
as to please its buyers or customers.
TECHNICAL VIABILITY

This component involves a high level of skill, it pertains how a product or service will be
delivered- materials, labour, transportation, technology, where your business will be
located, potential buyers etcetera.

The skill needed in the technical viability pertains to understanding your market better:
will it be possible to sell the desired product there? If not what are the options or ideas that
will make your product sell in the market. Another great question asked should be: how far
is the company’s base from the desired market?, if it is far , what idea or skill will be used to
ensure that the producers gain and the consumers also benefit from this product at an
acceptable . The question pertaining potential buyers also affects the price of the product. If
these buyers are very rich then, the price doesn’t have to be acceptable by the general
public; it should be aimed at the class of its potential buyers, the rich. Since the desired
product will be costly, then the quality of the good has to vary directly with the cost of the
good.

ORGANIZATIONAL VIABILITY

This defines the legal and corporate body of the business (this can also compromise of the
type of business organization used to create and register the desired product, questions
asked in this section should be: is this business organization- partnership, sole
proprietorship suitable for the desired product? . It also comprises of the business partner
or partners involved in this organization, their individual roles in the company and the
skills that each member possesses.

Another question that can be asked in this section is; Are the skills and roles of the partner
or partners in this business of relevance and great significance to the product?. If these
questions are asked and their answers are positive, then the desired good can be produce
by the desired business organization.
PRODUCT OR SERVICE VIABILITY

The product or service viability can be affected by capital, technology, skill, etc. All of these
factors affect the product or service viability, but nothing affects it more than competition.
Some of the questions asked in this section are as follows;

1. Will this product survive in a competitive market?

2. Supposing, a better version of this product is introduced by another company, what
tactics will be employed to counteract this move by the other company? How sure
are we that this tactics will work?
3. What is that distinctive characteristic in our product that can lure customers to buy
this product?
4. Supposing the demand of or greater than the supply, how possible will it be to
satisfy the needs of the buyers?
5. Is the opportunity to sell this product present?

If all these questions are answered correctly, and the answers are positive, then the
product should make its market a lot more competitive, this product should be able to
satisfy the needs of its buyers, it should sell as a product termed,’’indispensable’’.

The function of the feasibility study components is to make sure the desired product can
fit the business plan and can also survive in its competitive market.
OUTLINE OF A BUSINESS FEASIBILITY STUDY
The following should represent a structural outline for the feasibility study of any business;

PRODUCT/SERVICE

For any feasibility study, it is first important to have a detailed information (detailed
knowledge) about the business, or the product or service to be offered. The study should
aim to;

 Describe the business, in terms of the product or service to be offered, in simple and
clear language. If the business/enterprise will be focusing on more than one
product, the products should be clearly described.
 Describe how customers would use and buy the product(s) or service(s), as this
could prove very effective in terms of marketing.
 Describe key components or raw materials that will be used in the product, and how
the business will be able to source these materials, as well as the availability of these
raw materials.
 Describe plans to test the product to ensure it works as planned and is sufficiently
durable, safe, and secure.
 Describe plans to improve the product, so it does not become obsolete and old-
fashioned as well as plans to expand the product line.

TECHNOLOGY

It is also very important to have complete technical knowledge about the product, in terms
of the technical expertise to be involved in the product. To this end the study should aim to;

 As necessary, provide further technical information about the product or service to

be offered by the business.
  Describe additional or ongoing research and development needs. Knowledge should
be acquired as regarding ongoing research on the product to be offered, as well as
needs in case of development.
 Keep the description in understandable terms, as well as explain technical terms to
be understood by business related readers.

INTENDED MARKET ENVIRONMENT

Any feasibility study should involve gathering knowledge on the intended market
environment i. e it should involve acquiring relevant knowledge on the market where the
product is to be offered. The study should aim to;

In terms of Target Market;

 Define and describe the target market(s) , and should also differentiate between the
end users and the customers.
 Be clear on how the target market would benefit from the product(s), or service(s)
to be offered i.eIt should also explain why the end users and/or customers will want
to buy the product/service.
 Describe the needs the product or service will fulfil adequately.

In terms of Business to Business markets;

 Provide information on the industry the target market is in, the key players
involved, the frequency of product purchase, replacement needs versus expansion,
as well as the process of purchase.
 Provide information on the estimates of market size, initial targeted geographic
area, as well as the business targeted market share.

In terms of Business to customer markets;

 Investigate demographic factors affecting intended customers, such as income level,

age range, gender, education level, ethnicity of the people.
  Investigate psychographic factors.
 Provide information on relevant behavioural factors such include product purchase
and shopping behaviour.

COMPETITION

Feasibility study also entails investigating the competition the product/service to be

offered will face in the market. It is important to know the type, and amount of competition
that the intended business will encounter, in target market. The study should aim to;

 Describe direct and indirect competition as it pertains to the target market.

 For key competitors, gather in formation s regarding market share, resources
available to competitors, product offered by competitors, and market focus, goals,
strategies, strengths and weaknesses of the competitors.
 Describe what is unique to the product(s) offered by the business in comparism to
the competition, and hence ensure that it is in line with the unmet needs of the
target market(s).
 Investigate how difficult it will be for competitors to copy the product(s)/
service(s) to be offered by the business.
 Describe how competitors will most likely react to the launch of the business, and
the response strategy of the business.

INDUSTRY

For any feasibility study, it is important to investigate the industry in which the business
will function. The study should intend to;

 Clearly define and describe the industry in which the business will operate. This
should include the size, growth rate, and outlook. It should define the key industry
divisions, and state where the business fits in.
  Describe the trends of demand and supply, as these have a major effect on the
success of the business. It is very important to know the factors that affect demand
and supply.
 Describe the larger forces that drive the market. These include innovation, cultural
change, regulation e. t. c.

BUSINESS MODEL

In feasibility study, it is important to know the business model of the intended business.
The study should aim to;

 Describe the proposed business model of the business. This will include how the
business will generate revenue.
 Describe the model in enough details to support financial projection.

MARKETING AND SALES STRATEGY

It is also important for any feasibility study to provide information on the strategies to be
employed when the business gets into the market, in terms of sales, distribution,
partnership of any sorts, pricing, budget. The study should thus seek to;

 Lay out the principal marketing and sales strategies to be employed.

 Discuss any strategic partnership, the business plans to engage in, to aid the
marketing of the product(s).
 Describe the distribution strategy to be undertaken, either it will be sold directly to
the customers, or sold through manufacturers, representatives, wholesalers,
distributors, or retailers.
 Describe the pricing strategy to be employed as well as the justification for the
strategy. This should include expected profit margins.
 Describe intended standard payment terms for customers.
 Quantify the marketing budget for the business.
PRODUCTION/OPERATING REQUIREMENTS

Feasibility study is also meant to take a keen look into the production and the production
process. This should include the methods to be employed in production, the requirements
for production, costs of production, e. t. c. The study is meant to;

 Have a clear description of how and where the business will manufacture, source or
create and deliver the final product or service to be able to estimate costs.
 Provide information on the physical premises required for production. This should
include the location, size, condition, and capacity of the planned production, as well
as warehouse facilities.
 Describe the manufacturing process, and provide information on the complexities of
the process, also provide information on equipment needed and costs.
 Describe supply sources, and their availability.
 Describe how the product(s)/service(s) will be delivered, measured, and improved.
 Provide information on the stakeholders who will be trading patners with the
business.

MANAGEMENT AND PERSONNEL

Feasibility study is also meant to cover the personnel to be involved in the business. It is
also meant to cover how the management of the business will be carried out. The study
should;

 List the proposed key managers. This should include their titles, responsibilities,
relevant background, experience, skills, and costs.
 Prepare personnel requirements. i. e the required people for the present, short term,
and long term., It should also provide information on the skills and qualifications
required, and thus the financial inference.

INTELLECTUAL PROPERTY
Any feasibility study should also;

 Briefly describe patents, copyrights, and trademarks to be obtained, as regarding

the business, its product(s), and service(s).
 Give the name of the licensor/assignor, describe key terms involved, as well as give
termination or renewal date, if the business is operating under a licensing
agreement, or patent assignment.

REGULATIONS/ ENVIRONMENTAL ISSUES

Any feasibility study should aim at investigating the non-economic forces that might affect
potentials of the business. Some of such forces may include;

 Key government regulations and the plans of the business in terms of compliance.
 Environmental factors, which could include the climate of the area the business is to
be located, the geographical characteristics of the area, e. t. c.
 Any environmental problems on property, and plans to address these problems, as
well as their cost.
 Political stability.

CRITICAL RISK FACTORS

It is important for any feasibility study to describe the critical risks involved or to be
involved in intended business, so as to make the aware of the risks he/she is getting
himself/herself into. Some of these risks include internal characteristics of business,
uniqueness of the business, investment to be involved, economic forecasts, change in
regulations, and technical obsolescence, e. t. c.

START-UP SCHEDULE
A feasibility study should also include an outline of the major events in the life of the
business, by listing the timetable for completion of the several phases of the start-up of the
business.

FINANCIAL PROJECTIONS

A feasibility study should also contain projections as regarding finance i. e., financial
projections’. The financial projections include financial history, equity and debt, if any, and
likely financing stages, which include information about funding sources and their uses.

CAPITAL REQUIREMENTS

As capital is the money used to start the business, much emphasis should be placed on it, as
without capital, there cannot be a business. Thus a feasibility study should gather
information as to the capital requirements for the business, the strategies for acquiring
these capital. The study should provide information regarding;

 How much funding to be required for the business, and when the funding will be
required.
 The projected revenue or assets the intended
to secure financing.
 The sources to provide the funding, these could be from investors, or from lending
institution.

FINAL FINDINGS & RECOMMENDATIONS

At the end of any feasibility study, the findings should be compiled; as well as
Recommendations be made from the study regarding the viability of putting the business
idea into practice. The recommendations made should be honest and direct. The
recommendations to be made from study, describing the viability of the business should be
in terms of;

 Market viability.
  Technical viability.
 Business model viability.
 Management model viability.
 Economic and financial model viability.
 Exit strategy viability.

The findings from the study should pertain to the likelihood of success, the projected
return on investment and how any identified risks could be taken care of.

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