Project Feasibility Study

What is Feasibility Study?

 Feasibility Study is the analysis of the viability of an idea.

 It is an analysis of all possible solutions to a problem and a recommendation
on the best solution to be used.
 It is a formal study to decide what type of system can be developed which
best meets the needs of the organisation.
 It is essentially a process for determining the viability of a proposed initiative
or service and providing a framework and direction for its development and
delivery.
Benefits of Feasibility Study

 Find a solution that is cost effective from a business perspective.

 Find a solution that is well recognised.
 Find out the probable market for the products.
 Find out the opportunities and threats as presented by the environment.
 Find out the characteristics of likely competitors.
 Determine the probable income of operating the project.
 Show the contributions the project can offer to the society.
 Role of Feasibility Study in Developing Business Idea

Product/Service
Feasibility

Spending the Industry/Market

time and Feasibility
Proposed resources
Business necessary to Organisational
Venture move forward Feasibility
with the
business idea
Financial Feasibility
depends on

If Yes in all 4 areas Proceed with Business Plan

If No in 1 or more areas Drop or Rethink Business Idea

Dimensions of Feasibility Study

 Market Analysis
 Technical Analysis
 Financial Analysis
 Economic Analysis
 Ecological Analysis
 Legal and Administrative Analysis
Market Analysis

 Market Research is the systematic gathering, recording and analysing of data

about problems relating to the marketing of goods and services.
 Market Research is the means by which those who provide goods and services
keep themselves in touch with the needs and wants of those who buy these
goods and services.
Marketing Questions

 What is the market?

 Who are the competitors?
 Who is the target audience?
 What do customers want?
 What do competitors offer?
 What is your USP?
 What do customers think you offer them?
Methods of Market Research

 Field Research
 Desk Research

Field Research
 Personal Interview
 Telephone Interview
 Postal Survey
 Purchase Survey
Desk Research
 Internal Sources
 Sales Figures
 Accounting Records
 Customers’ Comments & Complaints
 Sales Representatives’ Reports
 Online Researches
 Search Engines
 Newspapers
 University Online Databases
 Printed Research
 Business Directories
 Business Statistics
 Industrial Market Research Reports
Financial Analysis

 Financial Analysis seeks to ascertain whether the proposed project will be

financially viable in the sense of being able to meet the burden of servicing
debt and whether the proposed project will satisfy the return expectations of
those who provide the capital.
 The aspects which have to be looked into while conducting financial appraisal
are:
 Investment outlay and cost of project
 Means of financing
 Project profitability
 Breakeven Point
 Cash flows of the project
 Projected financial position
Financial Analysis

 The before mentioned points can be summarised as follows:

 Total start-up cash needed
 Financial performance of similar businesses
 Overall financial attractiveness of the proposed venture
Total Start-Up Cash Needed

 This refers to the total cash needed for making the business ready to make its
first sale.
 An actual budget should be prepared that lists all the anticipated capital
purchases and operating expenses needed to generate the first Re.1 in
revenue.
 The point of this exercise is to determine whether the proposed venture is
realistic given the total start-up cash needed.
Financial Performance of Similar
Businesses
 Estimate the proposed start-up’s financial performance by comparing it to
similar, already established businesses.
 There are several ways of doing this, all of which involve a little ethical
detective work.
 There are many reports available, some for free and some that require a fee,
offering detailed industry trend analysis and reports on thousands of individual
firms.
 Simple observational research may be needed. For example, the owners of a new
restaurant could estimate their sales by tracking the number of people who
patronise similar restaurants and estimating the average amount each customer
spends.
Overall Financial Attractiveness of the
Proposed Venture
 Financial Factors Associated with Promising Business Opportunities
 Steady and rapid growth in sales during the first 5 to 7 years in a clearly defined
market niche.
 High percentage of recurring revenue – meaning that once a firm wins a client, the
client will provide recurring sources of revenue.
 Ability to forecast income and expenses with a reasonable degree of certainty.
Projected financial statements are an important tool in determining the overall
performance of a company. They include the Balance Sheet, Income Statement and
Cash Flow Statements to indicate the company performance.
 Internally generated funds to finance and sustain growth.
 Availability of an exit opportunity for investors to convert equity to cash.
Technical Analysis

 The Technical Analysis of a project idea can be scrutinised in detail to

evaluate its technical feasibility.
 It is distinct from commercial, financial, economic and managerial feasibility.
 It is one of the first studies that must be conducted after a project has been
identified.
 Purpose of Technical Analysis is:
 To ensure that the project is technically feasible in the sense that all the inputs
required to set up the project are available.
 To choose the best alternative in terms of technology, size, location, etc.
Technical Analysis Factors

 Location & Site

 Plant Size
 Technology
 Layout
 Machinery & Equipment
 Environmental Impact Assessment
 Inputs
 Infrastructural Facilities
 Manpower
Location & Site

 A thorough and comparative analysis for each potential location should be

made to determine the most ideal site.
 It has to consider the following factors:
 The accessibility to and availability of raw material sources.
 The availability of cheap or moderately priced utilities such as power, water or
fuel.
 The combined cost of transporting raw materials and fuel to the site.
 The proximity to distributing outlets.
 The availability of skilled and unskilled labour.
 The availability of maps & charts of the proposed site.
Plant Size

 Determination of an optimum plant size is critical to the success of a project.

 It is better to build a plant having a capacity that is likely to be fully utilised
quickly, rather than to go in for a large capacity in the fond hope of a growing
share of the market.
 The best possible size of a plant is recommended after analysing the
availability, economics and practicability of different size options.
Technology

 Technology is a critical aspect of technical analysis of any project. So it must

be analysed effectively.
 For example, a technology which has proven itself in cold climates may fail in
tropical climate.
 The cost of acquisition, installation, repairs and maintenance should be
analysed properly.
 A technology is considered to be appropriate only if it is assessed to be
satisfactory and relevant.
Layout

 The layout should be depicted clearly through diagrams and descriptions.

 A good layout is characterised by:
 Minimum material handling
 Effective space utilisation
 Smooth work flow
 Safe and conductive working area for the workers
 Safety and sanitation facilities
 Flexibility of arrangements
Machinery & Equipment

 What type of equipment and technology will the business need to produce its
products/services?
 What costs are involved for purchasing and setting up the equipment?
 What are the costs involved in the ongoing running of the equipment?
 Who are the potential suppliers of equipment?
 Where are they located?
 What sort of service and warranties do they provide?
 How long will it take to acquire the equipment and begin operations?
Environmental Impact Assessment
 This study identifies the environment in which a project is to be implemented
and assesses the short and long term impacts.
 This checks the:
 Surface water quality
 Air quality
 Seismology / Geology
 Erosion
 Land quality
 Fisheries
 Forests
 Terrestrial wildlife
 Noise
 Archaeological /Historical significance
 Public health
Inputs

 These relate to the operation phase of the project but need to be identified
at this stage of the technical study to examine the technical feasibility of the
proposal.
 They are classified into:
 Raw materials
 Processed materials
 Water & steam
 Gas, fuels and electricity
Infrastructural Facilities

 Availability of roads, bridges, railway facilities, air transportation, waterways,

ports, etc. depending upon the relevance to the assessed requirements of the
project at both implementation and operation stages need to be studied.
 A detailed study of all such requirements and of their implications in terms of
time, resources and approximate costs is necessary to avoid surprises later
on.
Manpower

 The availability of skilled and unskilled manpower as needed by the project.

 Manpower covers both the project implementation and the operation (&
maintenance) phases.
 In case training is required, availability and cost of training facilities also have
to be assessed.
Economic Feasibility

 Analysis of project’s cost and revenues in effort to determine whether or not

it is logical and possible to complete.
Project Benefits

Tangible Benefits Intangible Benefits

 Reduce and avoid cost  Maintain competitiveness
 Reduce error  Increase organisational flexibility
 More flexible  Raise morale
 Faster activities  Promote learning and
 understanding
Improved control and planning
 Timely information
 New market niche and increasing
sales opportunities
Project Costs
Tangible Costs
 System development
 Hardware and software
procurement
 Users and staff training
 Site preparation
 Data or system conversion
Intangible Costs
 Maintenance and support
 Incremental data storage expense
 Incremental communications
 New software and hardware leases
 Consumables
How Do We Estimate Economical Benefits

 Economical benefits are usually estimated with:

 Historical information of similar projects
 Future taxation and inflation estimates
 Scale and scope of the project
 Anticipation of other competing projects
Operational Feasibility

 Operational feasibility determines if the human resources are available to

operate the system once it is installed.
 Users that do not want a new system may prevent it from becoming
operationally feasible so this includes efficient change management.
Essential Questions for Testing
Operational Feasibility
 Does management support the project?
 Are the users not happy with the current business practices?
 Will it reduce the operation time considerably?
 Have the users been involved in the planning and development of the project?
 Will the proposed system really benefit the organisation?
 Will the system affect the customers in a beneficial way?
Ecological Analysis

 Concerns that are usually addressed include the following:

 What is the likely damage caused by the project to the environment?
 What is the cost of restoration measures, if required, to ensure that the damage to
the environment is contained within acceptable limits?
 What is the cost of reducing the negative impact?
 Are there alternative ways of executing the project without incurring these
environmental damages?
 What are the costs of these alternatives?
Legal Feasibility

 It is a measure of how well a solution can be implemented within existing

legal/contractual obligations.
 It includes a study concerning contracts, liability, violations and legal other
traps frequently unknown to the technical staff.
 Determines whether the proposed system conflicts with legal requirements.
Legal Issues Related to the Product

 Copyrights or Patent Laws

 Legal requirements for Financial Reporting
 Anti-Trust Laws
 Labour Relations and Regulations
 Safety Regulations
 Union Contracts
 National Employment Laws
Administrative Analysis

 What are the managerial needs of the project?

 Does the organisation have the ability to get the managerial skills needed?
 Is the timing of the project consistent with the quantity and quality of
management?
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