MGMT 137n – Introduction to Project

Feasibility Study
MODULE 3: PREPARING THE FEASIBILITY
STUDY
Lesson 3.3: The Technical Aspect
of the Project Feasibility Study
Objectives:

• Construct graphical representation of how inputs are

transformed into outputs.
• Participate in estimating fixed assets and materials
and supplies requirement
• Forecast annual production volume based on market
demand and plant capacity.
• Develop the technical study write-up.
 PROJECT FEASIBILITY FRAMEWORK

SOCIO-
MARKET TECHNICAL MANAGEMENT FINANCIAL
STUDY STUDY ECONOMIC
STUDY STUDY
STUDY

ANALYSIS AND EVALUATION TESTING VIABILITY

PROJECT SUMMARY
 NATURE AND CONCEPT

Technical Study
 provides the details as to how a good will be
produced or how a service will be delivered
 it is a written explanation of the whole
manufacturing process and serves as the technical
plan for the production, storage and delivery of the
product to end-users
 it is usually written after the market study has been
conducted and unsatisfied demand has been
determined
 NATURE AND CONCEPT

The Technical Study aims to determine the following:

1. The manufacturing processes to be adopted
2. Plant capacity and designs
3. The production schedule
4. The product composition, physical appearance and chemical
properties
5. The available suppliers of machineries
6. Machinery specifications, capacity, prices and auxiliary equipment
7. The sources of raw materials, labor and utilities
8. The plant layout, including plant location and specifications
9. The specification and requirements of utilities
10. Provisions for waste disposal
 NATURE AND CONCEPT

There are three major interrelated activities comprising

the whole technical study
Selection Process
• is a significant concept tackled in a technical study.
Selection is done in the following technical actions:
1. the manufacturing process to be adopted as influenced
by the type of raw materials, chemical content, type and
capacity.
2. the plant and machinery capacity to be used.
3. the physical appearance of the product
4. the suppliers of machinery and auxiliary equipment
 NATURE AND CONCEPT

Determination Process
• the study should then be determining the requirements for
raw materials in terms of quantity and quality, the required
labor and the overhead expenses. The technical study may ne
presented in tabular form and must indicate the determined
necessary inputs to produce one unit of a product
Quantity of Processing Method
Product High-Pressure Moderate-Pressure Low-Pressure
Raw Materials A xxxx xxxx xxxx
Raw Materials B xxxx xxxx xxxx
Raw Materials C xxxx xxxx xxxx
Direct Labor X xxxx xxxx xxxx
Direct Labor Y xxxx xxxx xxxx
Direct Labor Z xxxx xxxx xxxx
Factory Overhead xxxx xxxx xxxx
 NATURE AND CONCEPT

Projection Process
• the last process involved in a technical study is
forecasting. A feasibility study is simply a projection
of the viability of a certain business endeavor based
on historical and valis facts.
• it is done under the following instance:
1. When a demand study is conducted
2. When a supply study is made
3. When a technical study is performed
Specific Items Considered in a Technical Study
The following elements need to be selected, determined and projected in a
technical study
1. Product or service
2. Manufacturing process
3. Plant capacity
4. Production schedule
5. Raw material requirements
6. Direct Labor requirements
7. Utilities and other overhead requirements
8. Plant location and layout
9. Machinery, equipment and tools
10. Building structures and other facilities
11. Waste Disposal System
12. Total cost of capital expenditures
 Product or Service
• is what a business provide to consumers.
• it is the final output of all the processes in the technical
study
• the following questions must be answered:
 What is the physical appearance of the product?
 What are the mechanical parts of the product?
 What are the chemical contents or properties of the product?
 What is the quantitative measurement of the product?
 Is the product perishable or not?
 What is the appearance of a similar competing product?
 What benefits does the product offer?
 What type of service is rendered?
 Manufacturing Process
• the process should only be included in the technical
study
• illustrates the sequential steps followed in the
manufacture of a proposed project
• these steps are illustrated in a flowchart
• the process to be followed is highly influenced by the
following: type of product, Characteristics of raw
materials and Expected quality
 Plant Capacity
• includes the maximum level of production that a
machine may actually achieve during a particular
period
• the following questions should be answered in this
section of the technical study:
 Who is the supplier of the machinery and equipment?
 What other equipment are needed?
 What is the design of the plant?
 Is there a stand by unit in case of an emergency?
 What is the expected lifespan of the processing plant?
 What are the auxiliary equipment?
 Plant Capacity
• This section presents the following:
1. A schematic or prospective diagram of the processing
plant.
2. A proper description of the machinery that has the
required capacity.
3. Suppliers of the machinery
4. Auxiliary Equipment
5. Estimate Cost
 Production Schedule
• is a manufacturing planning tool that aims to maximize the
production capacity of a plant or maximize production
efficiency by minimizing operation cost
• Benefits of production scheduling
 Increased production efficiency
 Exact delivery dates
 Reduced Inventory
 Reduced production costs
 Optimized work load on various stages
 Maximized production time
• Production Scheduling Tools
 Batch Production scheduling
 Cycle time analysis
 Visualization using the Gantt Chart
 Algorithmic methods
 Production Schedule
• the following schedules may be prepared such as the
following:
 Schedule for raw materials to be purchased
 Schedule for direct labor (number of laborers and labor
cost per hour)
 Schedule for other manufacturing costs
 Schedule for finished goods and delivery time
 Schedule for inventory level
 Raw Material Requirements
• this section should answer the following questions:
 What are the raw materials needed to produce the goods?
 Who are the existing and prospective suppliers of raw
materials?
 Are there enough available raw materials for the products?
 What is the proximity of the source of raw materials to the
processing plant?
 Are there raw materials to be imported?
 Are there alternative raw materials?
 What is the estimated cost of the raw materials?
 What is the trend in the world market in terms of raw
materials for the proposed product?
 Raw Material Requirements
• for this section a schedule of raw material
requirements for each unit of product should be in
tabular form as follows:
Raw Materials Requirements to Produce Product YY
Type of Raw Materials Suppliers Unit Costs Quantity per Unit Total Cost
Raw Material AA ABC Company xxxx xxxx xxxx
Raw Material BB DEF Company xxxx xxxx xxxx
Raw Material CC GHI Company xxxx xxxx xxxx
Raw Material DD JKL Company xxxx xxxx xxxx
Total xxxx
 Raw Material Requirements
Raw Materials Purchases – Based on the raw material requirements to
produce a good, the proponent should then prepare the quarterly
supporting schedule on raw material purchases in tabular form as follows:

Raw Materials Requirements to Produce Product YY

Particulars Raw Mat. AA Raw Mat. BB Raw Mat. CC Raw Mat. DD
Units to Produce xxx xxx xxx xxx
Multiplied by the Ratio of the
materials to units produced xxx xxx xxx xxx
Total Raw Materials Required xxx xxx xxx xxx
Add: Desired raw materials
ending inventory xxx xxx xxx xxx
Total xxx xxx xxx xxx
Less: Raw material inventory
beginning xxx xxx xxx xxx
Raw Materials to Purchase xxx xxx xxx xxx
 Direct Labor Requirements
• this section presents the direct labor requirements to
produce the goods or render the proposed services :
 What specific direct labor requirements are needed to
produce the goods or deliver the services?
 Are there enough direct laborers to produce the goods?
 How long will it take, in terms of number of hours to
produce the goods?
 How many workers are involved to produce the goods?
 How much is the wage of every worker per day or per hour?
 How much is the prevailing daily wage in the community?
 What is the minimum wage in the region where the
business is located?
 Direct Labor Requirements
This section usually presents the direct labor requirements
to produce one unit of good in tabular form as follows:
Direct Labor Requirements to Produce Good YY
Processing Department and Number of Units Daily Direct Labor Total Direct Labor Cost
Number of Workers Needed. Required per Unit Rate per Unit
Department 1
Worker AA XXXX XXXX XXXX
Worker BB XXXX XXXX XXXX
Worker CC XXXX XXXX XXXX
Department 2
Worker DD XXXX XXXX XXXX
Worker EE XXXX XXXX XXXX
Department 3
Worker FF XXXX XXXX XXXX
Worker GG XXXX XXXX XXXX
Total XXXX
Utilities and Other Overhead Requirements
• this section on utilities and other overhead costs
addresses the following questions:

 Who are the utility providers ( light and water)

 How much is the expected consumption for utilities?
 Are there ways to reduce utility consumptions?
 What are the other types of overhead costs that have
material effects on the manufacture of the products?
 Plant Location and Layout
• this section of the technical study answers the
following basic questions:

 Where will the production plant be located? ( Plant

Location)
 What will the physical layout of the plant be? ( Plant
Layout)
 Machinery, Equipment and Tools
• this section presents the type of machinery,
equipment and tools needed in producing the goods,
including the estimated acquisition and maintenance
costs. It answers the following questions:

 What is the model of the machinery and related

equipment, including required specifications?
 Who are the suppliers of these machineries and
equipment?
 Will the business buy brand new units or second hand
units?
 How much is the acquisition cost?
 Building Structure and Other Facilities
• this section is about the structures that need to be
constructed should answer the following questions:

 What is the size of the building to be constructed?

 What type of building will be constructed?
 How many storeys should the building have?
 How much is the estimated cost?
 Waste Disposal System
• this section describes the waste disposal system that
may be adopted based on the type of waste the
manufacturing processes produces.
• this section should answer the following questions:

 What type of waste disposal system should be adopted?

 What is the prevalent practice of the community in
disposing waste or trash?
 What is the expected volume of wastes to be produced by
the business in a month?
 Is the industrial waste to be produced by the business
recyclable?
 How much is the estimated cost of disposing the garbage?
TOTAL COST OF CAPITAL EXPENDITURES
Capital Expenditures Estimated Amount
Land xxx
Factory Building xxx
Administrative Building xxx
Machinery xxx
Equipment xxx
Tools xxx
Road Networks and Pathways xxx
Drainage System xxx
Parking Space xxx
Waste Disposal Facilities xxx
Working Capital Requirements xxx
Total xxx