CONCEPTS AND

PRINCIPLES IN
WRITING
FEASIBILITY STUDY
Chapter 1: Introduction
DEFINITION
 At present, there is no authoritative definition of the term "project feasibility
study." The following are possible reasons for the lack of a universal standard
definition:
 1. No institution has received government recognition for being established solely for the
purpose of monitoring or evaluating feasibility.
 2. Professional individuals or consultancy offices that conduct feasibility studies have not
organized themselves into a unified body to seek public recognition, and as a result, there is
no prescribed authoritative definition of the term.
 3. The exercise of preparing a feasibility study has not gained the status of a profession.
 Several definitions of the term have been made, and a few of them are quoted
here. It can be observed that there are certain salient features common among
them.
 Cabrera (2000), for instance, defines a project feasibility study as "a systematic
investigation which ascertains whether a business undertaking is viable and, if so, the
degree of its profitability.“
 Another definition states that it is "an analysis or research into the practicality of a proposed
plan or method, based on factors like marketplace, competition, available technology,
manpower, and financial resources" (Dictionary.com, n.d.).
 A different source mentions that a project feasibility study is an analysis of the ability to
complete a project successfully, taking into account the legal, economic, technological,
scheduling, and other factors (Investopedia.com, n.d.).
 For the purposes of the current discussion, the term project feasibility study will be defined
here as a systematic inquiry on a proposed business activity that is used to determine its
viability in all areas directed towards the measurement of a profitability level. This working
definition will be applied in the different sections of this text, and all discussions will be
made within the peripheral concept of this operational definition.
NATURE OF A FEASIBILITY
STUDY
 Based on the given definition Of project feasibility study, the key
points to remember are as follows:
 1. Systematic inquiry
 2. Proposed business activity
 3. Viability in all areas
 4. Measurement of profitability level
SYSTEMATIC INQUIRY
 The term systematic implies two things. First, it implies that there is a procedure or a step-by-
step process involved in the conduct of a feasibility study. An individual conducting a study has
to follow definite procedures in investigating a business opportunity that needs to be addressed.
The procedural steps, however, are not fixed. They can be modified according to the existing
conditions within which the study is conducted.
 Second, systematic means that the whole study is composed of different phases or aspects. Each
phase has unique characteristics that ultimately contribute to the attainment of the objectives of
the whole study. Despite the various aspects of the study having different objectives, they
should be well-coordinated and interdependent. The findings of one aspect should support other
areas, or they may be used in formulating a solution in other areas. This interlocking
relationship of the various parts of the whole system implies that work previously performed
may be repeated or reviewed if new developments or findings arise. The person conducting the
study can move forward to the next phase anytime or move backward by reviewing, modifying,
or amending the findings or results in the previous phases.
 In case viability is not presented or proven or if the picture of the proposed business project
failed to present the viability of one aspect, the whole system will be affected. It will practically
be a failure.
 A feasibility study, therefore, is a special type of research inquiry. However, the processes
involved in conducting a feasibility study do not usually follow the pattern of a social research
inquiry. A social research simply adopts surveys, experiments, or observations as methods to
gather data and come up with a conclusion. A feasibility study, on the-other hand, relies heavily
on a documentation procedure. It involves the analysis and evaluation of the trends in historical
data when making a necessary forecast.
 Historical data should come from reliable sources such as the Philippine Statistics Office (PSA),
Bangko Sentral ng Pilipinas (BSP),. Securities and Exchange. Commission (SEC), Philippine
Stock Exchange (PSE), National Economic and Development Authority (NEDA)' Board of
Investments (BOI), and other line agencies of the national government. Historical data,
therefore, are not hypothetical but empirical in character.
 However, when historical data are not available at the regional, provincial, or municipal level,
the proponents should supplement the data set by conducting a survey, using a questionnaire or
interview protocol, and applying the most appropriate statistical tool in drawing a forecast.
PROPOSED BUSINESS
ACTIVITY
 A project feasibility study only applies to a business endeavor. A business is an organization
engaged in lawful commercial activities such as providing products or services for monetary
consideration with the intention of realizing profit. Any study that is not conducted to promote
a business activity and is, instead, done to determine the benefits or needs of a particular
community, similar to a project proposal, cannot be considered a project feasibility study.
 To simplify, an activity should have the following characteristics to qualify as a business
activity:
 1. It should be intended for profit.
 2. It should be regularly undertaken.
 3. It should be financial in character.

 In some respects, however, a feasibility study is similar to other studies (e.g., a project
proposal or research) because it follows scientific procedures.
 Intended for Profit. A foremost concern of a project feasibility study is to maximize business
profits or improve the interest of the shareholders. In a feasibility study, profit refers to the
excess of all costs and expenses over revenue.
 Profit must be realized through a business activity that involves the exchange of values. One way of
increasing profits is by increasing sales. Bigger sales normally lead to bigger profits. Another way of
increasing profit is by reducing or minimizing the cost of producing and selling products or services.
Minimal costs normally lead to increased revenue. Applying the appropriate marketing strategy in
selling goods or services also helps improve the market share of the business.
 Regularly Undertaken. The element of regularity indicates that there is a continuing and
progressing economic act, not a mere single disconnected act. It implies that the act is evenly
conducted throughout the year. The characteristic of regularity in business substantially
differentiates it from other endeavors such as project management.
 Financial in Character. A business activity involves an exchange of monetary values with
another party. Except for the socio-economic phase, all aspects of a feasibility study have a
comrnon denominator expressed in Philippine peso. Studies that do not possess a financial
character, for example, improving the health condition of a community and other related
studies, do not fall under the operational definition of a project feasibility study.
VIABILITY IN ALL AREAS
 A project feasibility study tests the viability of a business endeavor in not only one but all
aspects. The viability of an activity is the primary concern of prospective investors. There may
be instances wherein a project is viable in one aspect of the study but not in other areas.
Viability in all areas ensures a higher chance of attracting and convincing prospective
investors.
 As a precautionary measure, a researcher should not immediately conclude that a project is
feasible simply because it is proven to be viable in one area. To reiterate, viability should be
proven in all aspects of a project.
MEASUREMENT OF
PROFITABILITY LEVEL
 As it has always been pointed out, a feasibility study is directed towards the determination of a
project's Viability. Viability can be expressed in different terms, one of which is profitability,
not only within a short period but also during the entire life of the business. Mere profitability,
however, is not the only essence of a project. It is important to measure the level of
profitability of a chosen project against other possible projects.
 A proposed business endeavor may appear to be profitable, but if its profitability level is
below that of other projects with a similar capital base, manpower requirements, or
management capability, such profitability does not carry -any weight in the evaluation and
implementation processes. Investors may not Commit funds to such project as it involves
opportunity cost.
 Opportunity cost refers to the cost or benefits foregone when one alternative.is chosen in
favor of another. For example, when an investor opts to invest in Project A instead of
Project B, the investor foregoes the opportunities or benefits that he/she may realize from
Project B. To illustrate further, for example, Angel decides to pursue a college education
Instead Of working as a saleslady after graduation from secondary education. The salary
that Angel would have received if she worked as a saleslady will be foregone. This
foregone benefit is called opportunity cost.
 A business that cannot achieve the profitability level required in the industry in which it
belongs will experience business difficulties. An instance in which a business difficulty
occurs is when a firm can hardly meet the working capital requirements. A business
difficulty ref to a stage wherein a firm cannot attain normal profitable operations. With a
good proj feasibility study, a business organization may avoid experiencing business
difficulties.
 To summarize, a project feasibility study can be described as follows:
 1. A project feasibility study is not the product of a simple and superficial investigati011 on the
viability of a business endeavor. It serves as the framework on how a business project can easily
be performed.
 2. It does not give much emphasis on bureaucratic processes in accomplishing objectives• It
highlights the significance of the thinking process.
 3. It is not rigorously undertaken for new business projects only. A feasibility study may also serve the requirements
of existing businesses, especially on the aspect of plant expansion, additional product lines, or new business
opportunities.
 4. It can besredited for a favorable success experienced by a business. Hence, a business without a good feasibility
study is more likely to fail than succeed.
 5. It embraces key areas of other disciplines such as economics, marketing, management, accounting, taxation,
engineering, quantitative analysis, mathematics, logic and reasoning, and business report-writing.
 6. It is undertaken primarily by profit-oriented organizations. As such, non-government
 organizations and the government, including any of its political subdivisions or instrumentalities, do not undertake
feasibility studies.
 instrumentalities, do not undertake feasibility studies.
 7. It involves a cost-benefit analysis which illustrates that the benefits derived from the study should exceed the total
estimated costs. Thus, studies having more costs than benefits are not usually favored by prospective investors.
 8. It is a special type of research inquiry whose forecast relies heavily on the documentation of historical data. The
data are usually obtained from records, statistics, and documents of various offices and government agencies.
PURPOSES OF A FEASIBILITY
STUDY
 The general purpose behind the conduct of a feasibility study is to test the viability of a
business project in all areas. Corollary to this underlying premise, a feasibility study is
conducted to achieve the following:
 1. Enhance the sustainability of a particular business endeavor undertaken
 2. Easily facilitate the evaluation of a project's success in all areas covered by the study
 3. Seek the infusion of additional fresh working capital from a financial institution
 4. Determine the recovery period of capital investment or the expected return on investment
 5. Serve as a measuring instrument in evaluating actual project results
 6. Mitigate, if not totally avoid, the expected business difficulty that may be experienced during the
actual implementation of the project
 7. Meet and satisfy the requirements set by the investors of a proposed business project
 QUALITIES OF A GOOD
FEASIBILITY STUDY
  Investors consider a number of factors before investing in a certain project, most especially if the amount
involved is material. They properly screen and evaluate both the qualitative and quantitative aspects of the
information they gather about a project.
 A project feasibility study serves as the medium in conveying valuable information to prospective investors.
For a feasibility study to be convincing, it must be comprehensive, objective, simple, and reliable.
 Comprehensive. The study should fully cover all areas that need to be scrutinized. It should present the overall
perspective of the proposed project so that users are properly guided in making an economic decision.
 All information that may be needed by users or prospective investors should be presented to answer all queries that may arise as
the users scrutinize every aspect of the study. Complete and comprehensive information is necessary to hasten the formulation of
decisions.
 Objective. Being objective denotes an unbiased presentation of the findings of the study based on a fair evaluation and
critical analysis of data from various sources. Data should not be manipulated to meet the specific needs of a particular
investor nor be directed towards an inadmissible purpose.
 However, the objectivity of the study should not be distorted by the fact that it is a combination of both facts and the professional
opinions of the project proponent. The study should contain not only absolute facts and figures from quantitative sources but also
documented opinions and assumptions to make it persuasive and well-balanced.
 The study should indicate the strong and weak points of the proposed project. Similarly, it must present the advantages and
disadvantages of a particular strategy or method of analytical process.
 Simple. The language and expressions of a feasibility study should be simple to enhance
understanding. The orientation and background of its prospective readers should be taken
into consideration when preparing the final output.
 Verbose expressions are discouraged, and simple language is promoted. If technical terms cannot
be avoided, they should be expressed at the level of the reader's understanding. Simplicity,
however, does not mean that terminologies or technical terms in specialized fields will be totally
avoided. Rather, they should be clearly defined and explained in such a way that they can be easily
understood by the readers.
 Reliable. Reliability means that there is a high degree of truthfulness in the available data,
the analysis and evaluation, and the conclusion of the study. A study is considered reliable
when it fully satisfies the requirements of objectivity, is free from errors, and is neutral.
Data must not be manipulated, and findings should not be directed towards the needs of an
unqualified user.
 Reliability also depends on the qualifications of the person preparing the study. A good academic
background, long working experience in the specific field of study and in related areas, and skills
and technical expertise on the area of specialization are major requirements for the person
conducting the study.
USEFULNESS OF FEASIBILITY
STUDY
 A proposed project can benefit from the result of a feasibility study in various ways such ad
the following:
 1. For the benefit of the project proponents, it is still the most scientific instrument, with different
interdependent aspects, that can be used in project design or redesign.
 2. It can minimize, if not totally eradicate, the business difficulty that may be experienced in the
actual implementation of the project. This would greatly benefit the prospective Investors.
 3. It is considered the most reliable instrument in making a decision of whether to implement or
discard a project, which would also directly benefit the investors.
 4. It is the most comprehensive medium that can be used to evaluate a project in terms of infusing
additional fresh capital or granting tax exemption incentives. Financial institutions and government
agencies could make use of the results in these areas of the feasibility study.
 5. It is an effective tool for evaluating the profitability level and sustainability of a proposed project.
Prospective investors
 LIMITATIONS OF A
FEASIBILITY STUDY
 Though a feasibility study provides substantial benefits to its users, it has some inherent limitations such as the
following:
 1. Valuable information greatly needed in the study may not be readily available. The different organizations, both government and
non-government, that are expected to provide information sometimes do not have the information themselves.
 2. The cost of gathering the necessary data required in the analysis, formulation of conclusions, and drafting of recommendations
may be very high. If the required data are not used because of the high costs of acquisition and conclusions are reached based
merely on available information, questions may arise as to the reliability of the findings and conclusions.
 3. Competitors may have available data directly related to their operations, but they may hesitate to share such information because
of confidentiality in terms of effects on taxation, production process, marketing strategies, market share, and other related aspects
of the. business. Business entities usually do not open themselves to competitors, both existing and prospective.
 4. The person undertaking the study may not have acquired the necessary professional expertise and competency in making the
feasibility study. High-order critical thinking skills are required in preparing a feasibility study, in addition to the basic
requirements of an educational background in the field of economics, industrial engineering, accounting, financial investment,
laws, and taxation.
 5. a feasibility study, though conducted by a competent individual and with all necessary data available, still remains a forecast,
and nobody can vouch for the attainability of the forecast. A forecast is a projection of what may happen in the future, and it is
usually based on the trend of past events. What happens in the future may be the result of a trend in the past, but a feasibility study
can only provide indicators of probabilities
FACTORS AFFECTING THE PREPARATION OF
A FEASIBILITY STUDY

 A variety of factors can affect the preparation of a feasibility study. They may be related to the
length of time and funds required to undertake and finish a study.
 Some of the factors are as follows:
 1. Type of industry
 2. Size of the project
 3. Purpose of the study
 4. Party preparing the study
 5. Requirements of prospective investors
TYPE OF INDUSTRY
 Industry refers to a group of companies that have common characteristics and are related in terms of
operational processes, products sold, market, functions, or services offered. There is no common
classification of industries; hence, they are classified in various ways.
 Industries are .broadly classified into extractive? manufacturing, and service. Firstly, businesses under the
extractive or primary industry extract natural resources and sell the products without further processing.
Included here are mining, logging, and farming operations. Secondly, businesses under the manufacturing
industry process the rawmaterials from the primary industry and sell the finished goods to industrial or
individual consumers. Thirdly, those falling under the service industry are composed of companies rendering
services to the market.
 Industries can also be classified according to the products they sell. As such, there are the automotive
industry, fish industry, meat packing industry, entertainment industry, electronic industry, software industry,
utility industry, and chemical industry.
 Usually, proposed businesses under either the extractive or manufacturing industries require lengthier
preparations. More time is involved in revising the preparation of results, and a substantial amount of cash is
required to complete the study as compared to businesses under the service industry.
SIZE OF THE PROJECT
 The size of a project has a direct relationship to the factors affecting the preparation of the
feasibility study. Project size is usually expressed in terms of investment requirements. A
project with a multi-million fund requirement needs more time for planning, evaluation,
gathering of desired information, and revision. On the other hand, the factors affecting the
study are substantially reduced if a proposed project has a minimal funding requirement.
 For example, a proposed processing plant for a brewery involving an estimated funding
requirement of P7.S billion entails a lot of study and effort than a proposed candle-making
project with a funding requirement of only PIO million.
PURPOSE OF THE STUDY
 It is a common misconception that a feasibility study is solely intended for new projects, as
this is not always the case. Existing businesses also expect feasibility studies to provide the
following information:
 1. Market information on plans to expand
 2. Product information on plans to offer a new product to the market
 3. Competition analyses as a result of the entrance of a new competitor
 4. Demand studies on plans to launch a new service

 However, a feasibility study conducted to determine theviability of a new major project entails
more preparation, analysis, time, and funding than a study for existing or old business
endeavors.
PARTY PREPARING THE
STUDY
 A feasibility study covers wide and different areas of specialization. Thus, it cannot be performed by only one
individual. A group conducting a study may include the following:
 1. An economist who will study the trends of the supply and demand ofgoods, including prices
 2. An industrial engineer who will study the production processes, waste management, and efficient use of resources,
particularly energy
 3. A mechanical engineer who will design the manufacturing plant, machinery, and other mechanical equipment for a
project
 4. A marketing consultant who will design marketing strategies, create a marketing plan, and determine the appropriate
marketing mix
 5. An accountant who will prepare the necessary projected financial statements and schedules
 6. A lawyer who will prepare the legal documents required by different agencies, banks and other monitoring offices
 7. A human resource officer who will provide the necessary inputs on staffing, job descriptions, and qualification
standards of personnel
 The preparation of a feasibility study for a major business project requires more team members which also
translates to longer time and more cash requirements.
REQUIREMENTS OF
PROSPECTIVE INVESTORS
 There is no standard template for a feasibility study. The arrangement of the different parts and
sections is often prescribed by the funding agency or the prospective investors. More time and
cash are needed in the preparation and revision in case prospective investors specify a more
detailed report of the results. Requests for additional data and evaluation by prospective
investors, other than those considered the basics in a feasibility study, will mean more
resources to use up.
 For example, assumptions in a study are generally based on the past year's experience of a
business. In case a prospective investor does not want to base the assumptions on the past
year's experience, the gathering of necessary information to support the assumptions will
involve more time and funds.
CLASSIFICATION OF
FEASIBILITY STUDIES
 A feasibility study is prepared for business enterprises only. Although there is no straightforward classification of a
feasibility study, the discussion of the concept may easily be facilitated by using the following categories:
 1. As to the amount of investment
 2. As to the status of the project
 3. As to the industry classification
 4. As to the nature of management
 5. As to the liability of investors

 As to the Amount of Investment. In terms of capital base, a business project can be classified as micro, small,
medium, or large. A proposed business project with a total investment of P3 million and below is classified as a
micro entity.
 A feasibility study for a proposed business project with total assets or resources Of between P3 million to P350
million, or total financiafobligations from financing institutions between P3 million to P250 million, is a study for
small- and medium-sized entities.
 A feasibility study conducted for an enterprise whose total resources are more than '350 million is intended for
large business entities.
 As to the Status of the Project. In terms of status, a feasibility study can either be for a new project or for the expansion of an existing business
enterprise. However, "new" does not imply that the proposed project is not among those entities the investors are currently engaged with.
 An existing business that plans to expand, although already profitable at its present capacity, still requires a feasibility study. Expansion can
either be in the form of opening another manufacturing plant in other localities, which would involve a study on the size of the plant, necessary
machinery and equipment involved, or diversification by offering new lines of products.
 As to the Industry Classification. A feasibility study may be classified according to the following industries:
 1. Manufacturing
 2. Real estate
 3. Electronics
 4. Transportation
 5. Entertainment
 6.Agriculture
 7. Merchandising
 8. Utilities

 The focus of a study may differ slightly from one industry to another.
 As to the Nature of Management. The proposed business entity may either be administered by newly-hired managerial personnel or by the
existing set of officers. Oftentimes, the nature of a proposed project is highly influenced by whether or not it will be under a new management.
In case the existing management has the required expertise and the available time to handle the project, there is no need to hire a new set of
managers. However, if the new project is not aligned with the capabilities of the existing management, there is a need to look for new one.
 As to the Liability of Investors. The liability of investors or owners depends entirely on the type of the proposed business. The business under
study can either be a sole proprietorship, a partnership, or a corporation. In a sole proprietorship and partnership, the liability of the owners to
the creditors is not limited to their investments only. In the event of liquidation and if there are still unsettled obligations, the creditor can run
after the personal properties of the owners.
 However, the liability Of the owners in a corporation is limited only to their investments. In case of bankruptcy, creditors cannot run after the
personal properties of the shareholders.
PARTIES REQUIRING A
FEASIBILITY STUDY
 Different parties require different feasibility studies depending on the specific purpose Of the party
concerned. The different parties that may require a feasibility study are as follows:
 1. Prospective investors
 2. Management
 3. Proponents
 4. Financial institutions
 5. Shareholders
 6. Government agencies

 Prospective Investors
 Prospective investors are primarily interested in knowing the viability of a proposed project taken as a whole. In
addition, they are very much interested in conducting a feasibility study because they want to determine the following:
 1. If the profitability of a business can be sustained during its entire life
 2. The amount of funds to be committed
 3. The rate of return on invested capital
 Management
 The management of an existing project would want to conduct a feasibility study to determine the following:
 1. The viability of the proposed expansion, such as the opening of a new manufacturing plant, a new branch, or a new
product line
 2. The appropriate selling price of an existing business which the organization is planning to dispose of
 3. The appropriate price of a particular business which the company plans to buy
 4. The gap between the expected demand and the estimated supply for a new product line that the business plans to
introduce

 Proponents
 Promoters of a new project are looking to conduct a feasibility study because they want to achieve the following:
 1. Test the viability of a new project through the application of the appropriate projection tools
 2. Answer the queries of other interested parties
 3. Identify possible ways to improve project specification, particularly through a market study
 4. Use the study as an instrument in attracting prospective investors
 Financial Institutions
 Lending institutions or creditor banks take interest in feasibility studies to achieve the following:
 1. Determine the capacity of proposed projects to settle their financial obligations before they extend the necessary credit
 2. Define the terms and conditions for extended credit, particularly the interest rate, repayment period, or collaterals used to secure the amount
borrowed

 Shareholders
 The shareholders of an existing business are interested in feasibility studies because they need to accomplish the following:
 1. Have a basis in making a decision on the sale of an existing business or the purchase of a new one
 2. Decide whether or not to commit additional fresh capital on a proposed new project
 3. Determine the expected return on their investments on a new project

 Government Agencies
 Government agencies are keen on evaluating feasibility studies in order to determine the following:
 1. Whether the project has complied with the minimum requirements
 2. Whether the project needs to be supported in terms of providing incentives or grants
 3. Whether the project contributes to the socio-economic program promoted by the government

 PROJECT FEASIBILITY FRAMEWORK

 The framework used in the preparation of a project feasibility study is shown in Figure 1.1. It presents the following major aspects
of a feasibility study based on the sequential flow of data and information:
 1. Market study
 2. Technical study
 3. Management study
 4. Financial study
 S. Socio-economic study
 As discussed earlier, there are currently no standardized parts or aspects of a feasibility study that have been
universally accepted and observed. Usually, the investors define the sections, including the arrangement, format,
and details to be included in the study. In case an investor does not define the specific requirements and details
of the study, the promoters or the consultancy offices conducting the study follow their own format.
 The whole process starts with proper evaluation of the market. The findings and conclusions
reached in the market study serve as the basis for defining the requiremens the of the technical
study. This is usually followed by the management study to determine appropriate and
effective organization in attaining the objectives, As the proponent moves to the next phase,
he/she may review and modify the findings if there are new that warrant changes in the
recommendation.
 Once done with the three major aspects of the study (i.e.„ market, technical' and management),
the proponent may collate the findings, projections, assumpti0nS professional opinions and
express them in monetary terms in the financial T} financial study will reflect the probable
result of the operating performance amount of investment, and the level of working capital.