Feasibility 3rd Week

Feasibility
Studies
Assoc. Prof. İrem UÇAL SARI
Istanbul Technical University
10/26/2023 10:20 AM 1
Syllabus
Date Week Topic
21.09.2022 1 General Introduction
28.09.2022 2 Recognizing Opportunities and Generating Ideas
5.10.2022 3 Pre-feasibility Study and Feasibility Study
12.10.2022 4 Market Feasibility
19.10.2022 5 Project presentations (Idea Generation and Selection)
26.10.2022 6 Project presentations (Idea Generation and Selection)
02.11.2022 7 Technical Feasibility
09.11.2022 8 Financial Feasibility
16.11.2022 9 Midterm Exam
23.11.2022 10 Project Presentations
14.12.2022 13 Selection of the project alternatives using MCDM Methods
21.12.2022 14 Best Term Project Determination. In class application
10/26/2023 10:20 AM 2
PREFEASIBILITY STUDY
• The applicability of the investment idea is

questioned
• Demand?
• Technical requirements?
• Financial requirements?
• It is not precise and does not contain details.
10/26/2023 10:20 AM 3
Pre-Feasibility Study
• an early-stage analysis of potential projects.
• conducted by a small team
• designed to give company stakeholders the

basic information they need
• to green-light the project
or
• choose between potential investments.
11/10/2021 1:52 PM 4
• These studies typically yield information

considered important to the decision-
making process.
• an overview of
• a project’s logistics,
• capital requirements,
• key challenges, etc.
11/10/2021 1:52 PM 5
• Pre-feasibility studies act as one of the first
explorations of a potential investment,
following a preliminary resource report.
• Companies use these studies to collect

information before investing money and
time in a detailed feasibility study.
11/10/2021 1:52 PM 6
• Takes into account factors that may impact
or interfere with the final project such as
community issues, geographic obstacles,
permit challenges…
• If the pre-feasibility study results in a

positive base-case scenario, the company
will likely move on to the next stage: a
feasibility study.
11/10/2021 1:52 PM 7
Pre-feasibility Study
Pre-feasibility Study Feasibility Study
✓ Objective: To determine whether the

✓ Objective: To determine the true
project idea needs further
profit of the project and work on
investigation (whether a feasibility
details.
study is required or not and what
aspects of the project are critical to
its viability.)
❖ Scope: An overview of the project ❖ Scope: Maximum coverage of the

proposal is furnished. Complete project proposal as the decision is
details not presented. based on economic feasibility-like
technical and financial feasibility,
commercial viability, organizational
support, etc.
19
➢ Type of Research: All types of

➢ Type of Research: Most
research methodologies are
information is obtained from
followed: Primary sources including
secondary sources and informal
formal and informal networks are
surveys.
used to gather complete information
❖ Information expected from the ❖ Information expected from the

report: Location and site, Market, report: Location, Technology,
Plant capacity, Materials, Project Capacity, Investment required,
Engineering and Technology and production costs, sales return on
Equipment, Manpower, Overheads, investment, dept-equity ratio,
implementation, Financial analysis, projected cash flows, cost-benefit
Project financing, Investment, analysis, pre-operative expenses,
Production costs, Commercial sources of funds, justification of
profitability. assumptions and solutions obtained,
complete implementation schedule
with necessary charts and milestones.
19
✓ Time Spent: Short duration ✓ Time Spent: Long-term 1 to 2 tears

ranging from 3 to 6 months. depending on the nature and
complexity of projects as complete
information needs to be gathered.
➢ Cost involvement: Minimal ➢ Cost involvement: Generally in the

range of 1.5 to 3% of project value
for small and medium projects and
0.5-1.5% for large projects.
❖ Accuracy of information gathered: ❖ Accuracy of information gathered:

about 60% to 70% generally Information needs to be very
accurate (90% to 95%) as decisions
are based on this report.
19
11/10/2021 1:52 PM 1
Comprises several stages:
➢ Opportunity Studies: Identification of

investment opportunities
➢ Analysis of project alternatives
➢ Preliminary project selection
➢ Project Preparation (Pre-feasibility and
feasibility studies)
➢ Project Appraisal
➢ Investment Decisions (Appraisal Report)
➢ Support or functional studies
19
❖ The identification of investment
opportunities
❖ The main instrument used to quantify the

parameters, information, and data required
Opportunity to develop a project idea into a proposal.

Studies ❖ Rather sketchy in nature and rely more on
aggregate estimates than on detailed
analysis.
❖ Cost data are usually taken from

comparable existing projects.
10/26/2023 10:20 AM 14
❖ Natural resources with potential for
processing and manufacture
❖ The existing agricultural pattern that serves
as a basis for agro-based industries
❖ Future demand for certain customer goods
Opportunity that have growth potential as a result of
studies increased population or purchasing power
should or for newly developed goods.
analyze: ❖ Imports, in order to identify areas for
import substitution
❖ Environmental impact
❖ Manufacturing sectors successful in other
countries with similar economic
backgrounds and levels of development,
capital, labor and natural resources
10/26/2023 10:20 AM 15
❖ Possible extension of existing lines of
manufacturing by backward or forward
integration
❖ Possibilities for diversification
❖ Possible extensions of existing industrial
Opportunity capacity
studies ❖ The general investment climate
should
❖ Industrial policies
analyze:
❖ Availability and cost of production factors
❖ Export possibilities
10/26/2023 10:20 AM 16
In the Pre-feasibility Study
before assigning larger funds for a feasibility study
➢ All possible project alternatives have been examined;

➢ Any aspects of the project are critical to its feasibility
and necessitate in-depth investigation through functional
or support studies such as market surveys, laboratory
tests, or pilot-plant tests are determined;
➢ The project idea, on the basis of the available
information, should be considered either non-viable or
attractive enough for a particular investor or investor
group;
➢ The standards and regulations that may prevent the
realization of the project are controlled.
19
Pre-feasibility Study: First Screen Evaluation
Pre-feasibility Case Study:
Green Housing
Greening the Ethiopian housing sector

Project through a package of regulatory and
Description
institutional reforms that incentivize the
delivery of affordable, green housing
11/10/2021 1:52 PM 22
Case Study: Green Housing
• The housing market currently responds to the demand for
more affordable housing through the rapid building of low-
cost and poor-quality housing, not taking into account trends
of broader urban and industrial development and the impacts
on climate resilience and energy intensity of residential
buildings and streets.
Market
• Without intervention, this can lead to:
Failure
• Urban infrastructure that locks Ethiopia into a pathway
of unsustainable
• development in the long-term (50 years+);
• Deterioration of urban environmental and public health
(lack of basic services in slums; pollution of land, air,
and water); and
• Poor quality, unsustainable housing choices which
11/10/2021 1:52 PM 23
impact growth potential due to failure to attract labor.
• Increase resilience of the built environment, reducing
environmental risk and GHG emissions from housing
• Strengthen institutions and improve coordination with

Strategic private sector to meet housing targets
Intent
• Reform policy and regulatory environment to provide
incentives for developing alternative green building
materials and techniques that are both culturally
acceptable and support employment in a green
construction sector.
11/10/2021 1:52 PM 24
• Institutions: Align CRGE, urban, housing, and
construction strategies; build
• knowledge base and capacity of city and regional
governments on housing issues
Proposed
• Incentive mechanisms: Review and update housing
interventions
policy objectives; urban
• planning and building codes/regulations.
• Investment: Investment in a green building design
competition to deliver up to 2,000 greenhouses in two
sites to demonstrate alternative building techniques and
materials and incentivize innovation and
entrepreneurship.
11/10/2021 1:52 PM 25
• Additional, decent, affordable housing that is
climate resilient and supports industrial
Expected development
Benefits • Reduced CO2e in housing build and operation
• Green Job creation in construction and related
sectors
• Estimated CAPEX: $US10 million

Investment costs
• Estimated OPEX: n/a
Implementation
timescale • Medium (2-5 years)
11/10/2021 1:52 PM 26
Implementing • Ministry of Urban Development and Housing

Organizations • Ministry of Construction
Potential source
• Green Climate Fund, Private sector, DFIs
of finance
• Development Terms of Reference for the

design competition. Develop a road map for
Recommended
policy and regulatory reform.
next steps
• Review guidelines on industrial park
expansion in consultation with city authorities.
11/10/2021 1:52 PM 27
Role of Feasibility Analysis
in Developing Successful
Business Ideas
11/10/2021 1:52 PM 28
Forms of Feasibility Analysis
1
Product/Service Feasibility (Pre-
feasibility/Market Feasibility)
2 Industry/Target Market Feasibility
3 Organizational / Technical Feasibility
10/26/2023 10:20 AM 4 Financial Feasibility

29
Outline for a Comprehensive Feasibility
Analysis
Part 1: Product/Service Feasibility
A. Product/service desirability
B. Product/service demand
Part 2: Industry/Target Market Feasibility

A. Industry attractiveness
B. Target market attractiveness
Part 3: Organizational Feasibility
A. Management prowess
B. Resource sufficiency
Part 4: Financial Feasibility
A. Total start-up cash needed
B. Financial performance of similar businesses
C. Overall financial attractiveness of the proposed venture
Overall Assessment
Product/Service Feasibility Analysis
Purpose
• Is an assessment of the overall appeal of the product
or service being proposed.
• Before a prospective firm rushes a new product or
service into development, it should be sure that the
product or service is what prospective customers want.
• Components of product/service feasibility analysis
• Product/Service Desirability
• Product/Service Demand
Copyright © 2019, 2016, 2012 Pearson Education, Inc. All Rights Reserved.
• Product/Service Desirability (1/2)
– Determine the basic appeal of the product or service.
• Does it make sense? Is it reasonable? Is it something consumers
will get excited about?
• Does it take advantage of an environmental trend, solve a problem,
or take advantage of a gap in the marketplace?
• Is this a good time to introduce the product or service to the market?
• Are there any fatal flaws in the product or service’s basic design or
concept?
• Product/Service Desirability (2/2)
– Administer a Concept Test
▪ A concept statement should be developed.
▪ A concept statement is a one-page description of a product or
service idea that is distributed to people who are asked to provide
feedback on the potential of the idea.
▪ The feedback will hopefully provide the entrepreneur:
– A sense of the viability of the product or service idea.
– Suggestions for how the idea can be strengthened or “tweaked”
before proceeding further.
• Product/Service Demand
• Step 1: Talking Face-to-Face with Potential
Customers
• Step 2: Using Online Tools
• Step 3: Library, Internet and Gumshoe Research
Industry/Target Market Feasibility
Analysis (1 of 2)
Purpose
• Is an assessment of the overall appeal of the industry and
the target market for the proposed business.
• An industry is a group of firms producing a similar product
or service.
• A firm’s target market is the limited portion of the industry
it plans to go after.
Industry/Target Market Feasibility
Analysis (2 of 2)
Components of industry/target market feasibility analysis
• Industry Attractiveness
• Target Market Attractiveness
Organizational Feasibility Analysis
Purpose
• Is conducted to determine whether a proposed business
has sufficient management expertise, organizational
competence, and resources to successfully launch a
business.
• Focuses on non-financial resources (financial resources
are considered later)
Organizational Feasibility Analysis (2 of 2)
Components of organizational feasibility analysis
• Management Prowess
• Resource Sufficiency
Management Prowess
• A proposed business should candidly evaluate the
prowess, or ability, of its management team to satisfy itself
that management has the requisite passion and expertise
to launch the venture.
• Two of the most important factors in this area are:
‒ The passion that the sole entrepreneur or the founding
team has for the business idea.
‒ The extent to which the sole entrepreneur or the
founding team understands the markets in which the
firm will participate.
Resource Sufficiency
• This topic pertains to an assessment of whether an
entrepreneur has sufficient resources to launch the
proposed venture.
• To test resource sufficiency, a firm should list the 6 to 12
most critical nonfinancial resources that will be needed to
move the business idea forward successfully.
‒ If critical resources are not available in certain areas, it
may be impractical to proceed with the business idea.
Financial Feasibility Analysis (1 of 2)
Purpose
• Is the final component of a comprehensive feasibility
analysis.
• A preliminary financial assessment is sufficient.
Financial Feasibility Analysis (2 of 2)
Components of financial feasibility analysis
• Total Start-Up Cash Needed
• Financial Performance of Similar Businesses
• Overall Financial Attractiveness of the Proposed Venture

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Feasibility 3rd Week

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Feasibility

• The applicability of the investment idea is

• conducted by a small team

• designed to give company stakeholders the

• These studies typically yield information

• Companies use these studies to collect

• If the pre-feasibility study results in a

Pre-feasibility Study Feasibility Study

✓ Objective: To determine whether the

❖ Scope: An overview of the project ❖ Scope: Maximum coverage of the

➢ Type of Research: All types of

❖ Information expected from the ❖ Information expected from the

Pre-feasibility Study Feasibility Study

✓ Time Spent: Short duration ✓ Time Spent: Long-term 1 to 2 tears

➢ Cost involvement: Minimal ➢ Cost involvement: Generally in the

❖ Accuracy of information gathered: ❖ Accuracy of information gathered:

Comprises several stages:

➢ Opportunity Studies: Identification of

❖ The main instrument used to quantify the

Opportunity to develop a project idea into a proposal.

❖ Cost data are usually taken from

➢ All possible project alternatives have been examined;

Greening the Ethiopian housing sector

• Strengthen institutions and improve coordination with

• Estimated CAPEX: $US10 million

Implementing • Ministry of Urban Development and Housing

• Development Terms of Reference for the

2 Industry/Target Market Feasibility

3 Organizational / Technical Feasibility

10/26/2023 10:20 AM 4 Financial Feasibility

Part 2: Industry/Target Market Feasibility

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