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What is a Feasibility Study?

As the name implies, a feasibility study is an analysis of the viability of an idea. The feasibility study focuses on helping answer the essential question of should we proceed with the proposed pro!ect idea?" All activities of the study are directed toward helping answer this question. Feasibility studies can be used in many ways but primarily focus on proposed business ventures. Farmers and others with a business idea should conduct a feasibility study to determine the viability of their idea before proceeding with the development of a business. #etermining early that a business idea will not wor$ saves time, money and heartache later. A feasible business venture is one where the business will generate adequate cash%flow and profits, withstand the ris$s it will encounter, remain viable in the long%term and meet the goals of the founders. The venture can be either a start%up business, the purchase of an e&isting business, an e&pansion of current business operations or a new enterprise for an e&isting business. Feasibility Study 'utline is provided to give you guidance on how to proceed with the study and what to include. (ow to )se and When to #o a Feasibility Study will help you through the process and help you get the most out of your study. A feasibility study is only one step in the business idea assessment and business development process. Definition:
1. *y +ahle Wolfe, A feasibility study loo$s at the viability of an idea with an emphasis on

identifying potential problems and attempts to answer one main question, Will the idea wor$ and should you proceed with it?"
2.

Feasibility Study is basically a study that is done to !udge the viability of a new business venture. -t is actually a preliminary analysis of a pro!ect that lets the people $now that whether to proceed with a pro!ect or not."

'b!ectives of a Feasibility Study


Market Demographics 'ne ob!ective of a feasibility study is to determine if there.s a large enough mar$et to support your potential business. /esearchers gather information about mar$et si0e through canvassing and telemar$eting. 'ffering a free sample of your potential product can also help gauge interest levels. A feasibility study also e&amines the demographics of your potential mar$et1 information such as the potential buyers. average age, income and marital status can help with mar$eting in the later stages of business development. Competitiveness -t.s important to $now how competitive your business can be in the mar$et. A feasibility study e&amines already%established businesses to determine whether the mar$et is saturated or wide open. -f there is a high demand for your product and only a few businesses selling it,

the chances of your success are relatively high. -f your mar$et is saturated with large and successful companies controlling a great deal of resources and supported by large client bases, it.s li$ely that your business will need more time before it becomes truly profitable. Investment A feasibility study answers preliminary questions about initial investments. (ow much money will you need before your business is operational? (ow much time before your business become financially independent and solvent? A feasibility study ma$es some initial pro!ections based on mar$et si0e and demographics1 these pro!ections serve as a baseline for potential investors as they e&amine the potential ris$s and rewards of investing in your business. Returns 2ost important to investors are your returns pro!ections. /eturns include financial profits and other concrete benefits such as customer base, property, stoc$s and other assets that your business will acquire over time. /eturns can also refer to your business.s creditworthiness and overall financial stability. The financial pro!ection your feasibility study provides will give you, your business partners and your financial bac$ers an informed, if speculative, view of what the future may hold. Cash Flow 3stimate the costs of running your day%to%day operations. Add in the budget from any planned e&pansions to find the total amount of funding you need to stay afloat. 4ash flow feasibility studies are often requested by lenders or investors to evaluate the ris$ level of the business. -f your company is !ust starting out, your feasibility study should predict the amount of time until the company brea$s even. 4onsider possible negative outcomes to determine the effect on your timeline, such as a decline in the current customer base. Market Research *efore launching a new product or service, run a feasibility study on the si0e and demographics of the mar$et to determine its potential. Analy0e e&isting competitors to see if your company will be able to brea$ into the mar$et. Saturated mar$ets are not always bad. (aving several established competitors indicates that there is money to be made in that industry. (owever, your feasibility study may reveal that your company does not have the resources to compete, so you narrow your focus to a smaller niche mar$et instead. -n this case, the feasibility study stopped you from ma$ing a costly mista$e and crippling your product before it became established. Income Projections Feasibility studies can be used to determine whether a proposed pro!ect will be profitable. )se conservative estimates unless you have significant evidence the pro!ect will e&ceed them. +oo$ at industry growth to ma$e sure your estimates are reasonable for the current mar$et conditions. 4onsider all costs involved in the pro!ect, including labour, capital e&penditures and raw materials needed for production.

Expansion Possi ilities 3&panding facilities, mergers and acquisitions, adding a new product line or entering new mar$ets are also good reasons to conduct a feasibility study. 4onsider cultural issues if you are e&panding into a different country. An advertising campaign that is perfectly innocent in one country could be considered offensive when translated to a foreign language. -nclude logistical issues such as physical space, construction costs and hiring additional staff. Assess the legal and financial considerations of the pro!ect, such as 0oning laws and license requirements.

The 3lements of a 5ood Feasibility Study


-n its simplest form, a Feasibility Study represents a definition of a problem or opportunity to be studied, an analysis of the current mode of operation, a definition of requirements, an evaluation of alternatives, and an agreed upon course of action. As such, the activities for preparing a Feasibility Study are generic in nature and can be applied to any type of pro!ect, be it for systems and software development, ma$ing an acquisition, or any other pro!ect. There are basically si& parts to any effective Feasibility Study,
1. Project !cope: The pro!ect scope which is used to define the business problem and6or

opportunity to be addressed. The old adage, 7The problem well stated is half solved,7 is very apropos. The Scope should be definitive and to the point1 rambling narrative serves no purpose and can actually confuse pro!ect participants. -t is also necessary to define the parts of the business affected either directly or indirectly, including pro!ect participants and end%user areas affected by the pro!ect. The pro!ect sponsor should be identified, particularly if he6she is footing the bill.
2. Current "nal#sis: The current analysis is used to define and understand the current

method of implementation, such as a system, a product, etc. From this analysis, it is not uncommon to discover there is actually nothing wrong with the current system or product other than some misunderstandings regarding it or perhaps it needs some simple modifications as opposed to a ma!or overhaul. Also, the strengths and wea$nesses of the current approach are identified 8pros and cons9. -n addition, there may very well be elements of the current system or product that may be used in its successor thus saving time and money later on. Without such analysis, this may never be discovered.
3. Re$uirements % how requirements are defined depends on the ob!ect of the pro!ect.s

attention. For e&ample, how requirements are specified for a product are substantially different than requirements for an edifice, a bridge, or an information system. 3ach e&hibits totally different properties and, as such, are defined differently. (ow you define requirements for software is also substantially different than how you define them for systems. 8See, 7)nderstanding the Specifications :u00le79

4. "pproach, -t represents the recommended solution or course of action to satisfy the

requirements. (ere, various alternatives are considered along with an e&planation as to why the preferred solution was selected. -n terms of design related pro!ects, it is here where whole rough designs 8e.g., 7renderings79 are developed in order to determine viability. -t is also at this point where the use of e&isting structures and commercial alternatives are considered 8e.g., 7build versus buy7 decisions9.
5. Evaluation, -t e&amines the cost effectiveness of the Approach selected. This begins

with an analysis of the estimated total cost of the pro!ect. -n addition to the recommended solution, other alternatives are estimated in order to offer an economic comparison. For development pro!ects, an estimate of labour and out%of%poc$et e&penses is assembled along with a pro!ect schedule showing the pro!ect path and start%and%end dates.
6.

Review % all of the preceding elements are then assembled into a Feasibility Study and a formal review is conducted with all parties involved. The review serves two purposes, to substantiate the thoroughness and accuracy of the Feasibility Study, and to ma$e a pro!ect decision1 either approve it, re!ect it, or as$ that it be revised before ma$ing a final decision. -f approved, it is very important that all parties sign the document which e&presses their acceptance and commitment to it1 it may be a seemingly small gesture, but signatures carry a lot of weight later on as the pro!ect progresses. -f the Feasibility Study is re!ected, the reasons for its re!ection should be e&plained and attached to the document.

-t should be remembered that a Feasibility Study is more of a way of thin$ing as opposed to a bureaucratic process. For e&ample, what - have !ust described is essentially the same process we all follow when purchasing an automobile or a home. As the scope of the pro!ect grows, it becomes more important to document the Feasibility Study particularly if large amounts of money are involved and6or the criticality of delivery. ;ot only should the Feasibility Study contain sufficient detail to carry on to the ne&t succeeding phase in the pro!ect, but it should also be used for comparative analysis when preparing the final :ro!ect Audit which analyses what was delivered versus what was proposed in the Feasibility Study. Feasibility Studies represent a common sense approach to planning. Fran$ly, it is !ust plain good business to conduct them. (owever, - have read where some people in the -.T. field, such as the 7Agile7 methodology proponents, consider Feasibility Studies to be a colossal waste of time. -f this is true, -.ve got a good used car - want to sell them.

Aspects in Feasibility Study


Whether you use the already published pro!ect reports or wish to start afresh, you need to e&amine all the facets of the feasibility of the proposed pro!ect idea, vi0., mar$eting, and technical, financial, economic and legal.

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A mar$et, whether a place or not, is the arena for interaction among buyers and sellers. From seller>s point of view, mar$et analysis is primarily concerned with the aggregate demand of the proposed product6service in future and the mar$et share e&pected to be captured. Success of the proposed pro!ect clearly hinges on the continuing support of the customers. (owever, it is very difficult to identify the mar$et for one>s product6service. After all, the whole universe cannot be your mar$et. =ou have to carefully segment the mar$et according to some criteria such as geographic scope, demographic and psychological profile of the potential customers etc. -t is a study of $nowing who all comprise your customers, for this you require information on,

4onsumption trends. :ast and present supply position :roduction possibilities and constraints -mports and 3&ports 4ompetition 4ost structure 3lasticity of demand 4onsumer behaviour, intentions, motivations, attitudes, preferences and requirements #istribution channels and mar$eting policies in use Administrative, technical and legal constraints impinging on the mar$eting of the product.

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The ob!ective of financial analysis is to ascertain whether the proposed pro!ect will be financially viable in the sense of being able to meet the burden of servicing debt and whether the proposed pro!ect will satisfy the return e&pectations of those who provide the capital. While conducting a financial appraisal certain aspects has to be loo$ed into li$e, -nvestment outlay and cost of pro!ect 2eans of financing :ro!ected profitability *rea$% even point 4ash flows of the pro!ect -nvestment worthiness !udged in terms of various criteria of merit :ro!ected financial position

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The issues involved in the assessment of technical analysis of the proposed pro!ect may be classified into those pertaining to inputs, throughputs and outputs. -nput Analysis, -nput analysis is mainly concerned with the identification, quantification and evaluation of pro!ect inputs, that is, machinery and ?@ materials. =ou have to ensure that the right $ind and quality of inputs would be available at the right time and cost throughout the life of the pro!ect. =ou have to enter into long%term contracts with the potential suppliers1 in many cases you have to cultivate your supply

sources. When 2acdonald entered -ndia, they developed sustainable sources of supply of potatoes, lettuce and other ingredients for their burgers. The activities involved in developing and retaining supply sources are referred to as supply chain management. Throughput Analysis, -t refers to the production6operations that you would perform on the inputs to add value. )sually, the inputs received would undergo a process of transformation in several stages of manufacture. Where to locate the facility, what would be the sequence, what would be the layout, what would be the quality control measures, etc. are the issues that you would learn in greater details in subsequent lessons. 'utput Analysis, this involves product specification in terms of physical features% colour, weight, length, breadth, height1 functional features1 chemical material properties1 as well as standards to be complied with such as *-S, -S-, and -S' etc.

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3conomics is the study of costs% and% benefits. -n regard to the feasibility of the study the entrepreneur is concerned whether the capital cost as well as the cost of the product is !ustifiable vis%A%vis the price at which it will sell at the mar$et place. For e&ample, technically, silver can be e&tracted from silver bromide, 8a chemical used for processing the B%ray and photo films91 but, the cost of e&traction is so high that it would not be economically feasible to do so. +i$ewise, until recently cost of harnessing solar power was prohibitively high. This cost%benefit analysis goes into financial calculations for profitability analysis that we discussed under financial analysis. At this stage it is also useful to distinguish between the economic and commercial feasibility1 whereas economic feasibility leads one to the unit cost of the product, commercial feasibility informs whether enough units would sell. Apart from the cost%benefit analysis as above, which we also refer to as private cost benefit analysis, it is also useful to do what is $nown as social% cost%benefit% analysis 8S4*A9. For e&ample, the entrepreneur may be getting subsidi0ed electricity in which case private cost would be less than social cost. +i$ewise, e&porting units earn precious foreign e&change resulting into social benefits being more than private earnings. 2any a time, a pro!ect that is worthy on S4*A may find greater favour with the support agencies.

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-n recent years, environmental concerns have assumed a great deal of significance especially for pro!ects, which have significant ecological implications li$e power plants and irrigation schemes, and for environment polluting industries 8li$e bul$ drugs, chemicals and leather processing9. The concerns that are usually addressed include the following, What is the li$ely damage caused by the pro!ect to the environment? What is the cost of restoration measures required to ensure that the damage to the environment is contained within acceptable limits?

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Thin$ of the plight of the entrepreneur who wor$ed on the idea of a laundry to cater to hotels and hospitals, finds it eminently feasible only to learn subsequently that Dlaundry> does not figure as an industry within the administrative definition of SS- as applicable on that date.

Another entrepreneur in <alyani 8West *engal9 developed an Ayurvedic preparation only to find that the office of #-4 did not have an e&pert to validate the pro!ect1 the product had to be mar$eted as a confectionary itemE What is implied from these e&amples is that the entrepreneur has to be sure also of the administrative and legal issues involved in the pro!ect. These include, choice of the form of business organisation, registration and clearances and approvals from the diverse authorities. Forms of %rganisation !ole Proprietor: At the time of start up the entrepreneur usually has to handle all functional responsibilities of the venture and handles production, mar$eting, personnel, finance himself. As a result the vast ma!ority of new businesses start as sole proprietors. This form has the added merit of being free from formalities regarding incorporation or maintenance of accounts or auditing etc. Partnership: As the business grows the requirements for funds and management will also increase which might lead him to enter into partnership with one or more persons. -t is always preferable to have a written agreement in the form of a partnership deed which clearly indicates the names and addresses of the partners, their ages, contribution to capital, profit sharing ratio etc. This form also ma$es for pooling of s$ills and responsibilities and spread of ris$. Compan#: A company can be a private limited company, in which case it can have a minimum of F and a ma&imum of GH members. -t can be a public limited company, which has to have a minimum of @ members, and there is no ma&imum limit. This form of organisation provides vast amounts of capital as they, unli$e the private limited company, invite the general public to subscribe to its shares and also provide limited liability. The 4ompanies Act of IJG? governs the companies. Co&operative: A co%operative is an enterprise owned and controlled by people wor$ing in it. 5enerally they are formed for some specific purpose li$e a housing cooperative society. Clearances an' "pprovals: Setting up of an industrial unit requires the entrepreneur to obtain a number of clearances and approvals regarding land use, pollution control and safety. -n this regard, you would be required to interact with the local government authorities such as the municipalities6 village panchayats and state pollution control boards. -n case, you wish to avail the incentives accruing to the firms registered under 3&port :rocessing Kone6Special 3conomic Kone 8S3K9, Software Technology :ar$ 8ST:9, or IHHL 3&port 'riented )nit you would be required to register as such. *esides, certain products may require specific clearances from the relevant departments6authorities. *o& entitled D:roduct%Specific 4learances> illustrates a few e&amples of the necessary clearances and approvals vis%A%vis specific products.

3ssentials of Feasibility Study


The feasibility study must contain several $ey elements, namely,

The idea of the pro!ect, The nature of the pro!ect is determined in this step, whether 8industrial M services M trade etc.9. A simplified concept of the pro!ect is given and the environment it is intended for.

The need for the pro!ect, -n this item the most important reasons for initiating this pro!ect. This item should be supported with statistics such as the number of similar pro!ects in the area. *asic raw materials for the pro!ect, There should be mention of the basic raw materials needed for the pro!ect, and where can it be purchased from. :roducts, The products or services made or provided by the pro!ect must be mentioned. Stages of 2anufacture, A detailed e&planation of how the manufacture of any product will be done. Ta$ing into account the balance of raw materials involved in manufacturing, and the quantities required for production. Space and location, A description of the site where the pro!ect is located and the required space and the equipment for its establishment. Service requirements of the pro!ect, This shows the needs of the pro!ect in terms of services such as water 8square meters9, electricity 8$ilowatts per hour9, telephone and fuel 8liters9, it should be calculated and estimated in the form of money each month. 2achinery and equipment, The description of each machine or equipment needed for the pro!ect and power used for each 8$ilowatts9 and whether the equipment is going to be domestic or imported. What spare parts required for them and the price of the machines. /aw materials needed for the pro!ect, The detailed description of each piece that goes into production, and pac$aging and the amount used, whether by weight or by the number of pieces. 3mployment, A description of the type of employment required for the pro!ect. A description of the !ob duties, !ob titles and wages must be stated. Wor$ing hours, Whether it is a one shift 8N hours9 or two 8I? hours9 or three 8FO hours9. :roducts, To be described, named and determined by the quantity as well as specifying the price of each item. :ac$aging, The quality of materials used should be determined in pac$aging, with the addition of a poster showing all product data 8product name and logos, if any9. Also, the name of the producer, address and the name of the natural ingredients, additions and date of production and shelf%life should be on the pac$aging. Puality, Puality elements should be prepared for the pro!ect>s products. *eginning with cleanliness of premises to the health of the employees depending on the type of the pro!ect. 2ar$eting, To disclose intended mar$eting schemes such as participating in various e&hibitions or ta$ing the wholesale approach. Financial and economic study, 'ne should prepare a budget for investment costs. -nvestment costs are split between direct costs and indirect costs. #irect costs are the raw materials, intermediate raw materials, wages and salaries. -ndirect costs are electricity, fuel, maintenance, spare parts, mar$eting e&penses, rental of premises and insurance on the buildings. Also, the value of annual depreciation is considered as indirect costs and is

calculated as follows, GL depreciation on buildings and installations1 IHL on machinery1 IHL on fi&tures, fittings and furniture1 FHL on transportation1 IHL on establishment and testing1 and IHL as an emergency reserve. From the above, it is found that the fi&ed capital is, land % buildings and facilities % machinery and equipment % equipment, fi&tures, fittings and furniture % means of transportation % establishment and testing costs M and the emergency reserve9. The wor$ing capital on the other hand is, raw materials and intermediate raw materials % wages and salaries % electricity and fuel % and maintenance and spare parts % mar$eting e&penses % rent of buildings % securing buildings and equipment. And it is lin$ed to capital cycle 8monthly % bi%monthly etc.9. Annual profits are calculated as follows, Total annual sales 6 Total direct and indirect cost.

/eport *ody Format


3ach page of the report body should have a header that contains an abbreviated title for the report, your last name, and a page number flush right. -ndicate organi0ational structure within your report by using headings and subheadings. 2a$e sure that headings at the same level are written in parallel form. Also, ma$e sure that headings at the same level are consistently placed on the page 8i.e., centred, flush left, indented, etc.9. -f you use underlining, italics, or boldface to indicate heading level, ma$e sure you use it consistently. The body of your report is double%spaced pages using a professional loo$ing font, IH to IF point. -f sources are consulted, you will need to cite all your sources using a citation style that is appropriate for your field 8e.g., A:A, 4*3, etc.9.

4ontent of Feasibility /eport


The body of your report should include information from the following outline, Intro'uction(Executive !ummar#

#escribe the problem6opportunity you are fi&ing with your proposed plan State your main point of the report State the importance of your plan to your audience 5ive an bac$ground information your audience may need about the sub!ect

)ackgroun'

#escribe your proposed plan in sufficient detail State if it wor$ed elsewhere and how it was implemented

Metho'olog# * metho' of anal#sis

#iscuss your method of analysis for your feasibility study

%verview of "lternatives +if an#,

State any alternative proposals and their important features

Cost - )enefit Evaluation


#emonstrate how this proposal is feasible #iscuss technological feasibility, economic practicality, social desirability, and ecological soundness

Conclusions

#iscuss the conclusions you have drawn from your feasibility analysis and if it will wor$

Recommen'ations

2a$e recommendations based on your conclusions.

Feasibility Study :rocess


A Feasibility Study should underta$e the following activities,

The Feasibility Studies :rocess

Step I, /eview of 2aster :lan Findings


The 2aster :lan Study is to be reviewed and recommendations confirmed. This is particularly relevant if the following has occurred, There has been a considerable delay between the completion of the 2aster :lan Study and commencement of the Feasibility Study Significant change in government policy 4hange in service needs6demographics

4hange in site, conditions and6or changes to the (ealth Services> 6 Agency>s service and6or *usiness :lans. -f any amendments to the 2aster :lan Study are to be incorporated into the Feasibility Study they must be clearly identified, including reasons for the changes endorsed by the :ro!ect 4ontrol 5roup and approved by the #epartment.

Step F, Analysis of Functional *rief


The consultant analyses the Functional *rief, refer to the 2aster :lan Studies 5uideline to ensure that the services to be provided and the manner in which they are to be delivered is completely understood. The analysis will require a comprehensive appreciation of the functional requirements and relationships of the various programs and activities, functional relationship diagrams and identification of $ey functional needs. The Functional *rief should be the source of this information. Should the consultant require additional information or clarification, the :45 should be notified immediately and requested to provide the appropriate response. The Functional *rief may need to be refined6confirmed following this analysis phase and the final form should be endorsed by the :45 prior to proceeding to the ne&t phase.

Step Q, Area Allocation 2odel


An area allocation model incorporating the space utilisation analysis should be underta$en, including frequency of use and potential for multiple uses between programs. /efer to the figure, D3&ample of an Area Allocation 2odel.>

Step O, 4onfirmation of Site -nfluences


The consultant should investigate and confirm relevant information on site and location issues, which may impact on development options. These include, Access :ublic Transportation Services Topography Site services Authority requirements :lanning Schemes and /equirements 3&isting buildings 'rientation Ciews Ad!oining developments 3asements. Where the selection of a new site is required, the Feasibility Study will need to confirm the preferred site as identified in the 2aster :lan process.
Example of Area Allocation Model

Functional "rea

"ctivit#( !pace

.o/ Ppl IF

Prop0' "rea Comments M1 NO -ncludes 4ounsellors, 4ommunity #evelopment Wor$er, 4ommunity ;urse, (ome Withdrawal ;urse. Treatment room with proofing6isolation. sound

4ommunity (ealth'ffice Wor$ers

Speech :athology

IG

Functional "rea

"ctivit#( !pace -nterview /oom -nta$e /oom Store /oom Telephone /oom

.o/ Ppl ? Q % O

Prop0' "rea Comments M1 Q? IH FG IF IF IG ?G F@O ?N QOF Q ;o. at IFmR each. ;ear main supervision. entrance with

4an be two rooms. O phones6des$s6sound booths accessible from main wor$ room. ;urse 2anager not near main waiting area. +iaison64ontinence6 :alliative 4are ;urses #istrict ;urses GmR each.

'ffice 'ffice Staff Wor$ /oom Sub Total 4irculation 8FGL9 T'TA+ 4linical :hysiotherapy6 2assage :odiatry 'ffice Treatment /oom 4onsulting /oom Store /oom

O Q IQ

O I O Q O

Q FO FO FN IG IO

Share includes e&ercise area. I chair and wor$ bench. -ncludes small training room. O staff at any one time. Shared by all. Shared by specialists. visiting medical

'ccupational TherapyF

% Sub Total 4irculation 8QGL9 T'TA+

FH IGG GO FHJ

+ocate near e&ternal access for Staff to move equipment to and from vehicles.

Step G, -dentification of Ciable #evelopment 'ptions


A number of viable operational and detailed physical planning options should be identified. These options should be based on the 2aster :lan Study outcomes and other information. The options should be developed to such a level of detail to enable a full comparison. The level of information for each option should include, 4oncept site and floor plans -mpact statement on site and engineering services Site conditions and e&isting buildings -f appropriate, the potential to incorporate e&isting buildings giving due consideration to the e&isting building condition6fabric survey recommendations

4onstruction implications Staged wor$s.

Step ?, 3valuation of 'ptions


An evaluation of each option is to be underta$en, including a full assessment of, 'perational efficiencies :hysical planning benefits 4apital costs +ife cycle costs /ecurrent costs Future developments Asset maintenance and disposal potential Accessibility Puality of service delivery 4onstruction implications -mplementation program Staging of wor$s6disruption to services /is$s associated with the pro!ect. The option evaluation recommends the preferred option8s9 and also provides a detailed !ustification. :45 approval is required prior to the refinement of the preferred option8s9.

Step @, The /eport


A Feasibility Study report is to be prepared which documents the finding and outcomes of Steps I to ? and also incorporates the following information, Executive Summary % summation of the pro!ect ob!ectives, $ey issues and recommendations on a ma&imum of F%Q pages 4onditions *rief and #esign Summary % Summary of e&isting building conditions, Functional and #esign *rief /equirements and the design philosophy 4onfirmation of preferred site Options % drawings and statements on all options identified clearly outlining the preferred option Full Scope of Works % describe all additional wor$s which may be associated with the development of the preferred option8s9 including, o 2a!or wor$s o Site and engineering services o +andscaping o 4onstruction staging costs o Temporary accommodation o (a0ardous material 8e.g. Asbestos9 removal o #emolition o Soil contamination removal o Fire safety o -mpact on support services o 3quipment o (eritage issues.

Capital Costs % a 4ost :lan * must be developed for the preferred option. -t will be prepared on an elemental basis by a Puantity Surveyor. -t should comprise all costs associated with the pro!ect including, o Asset acquisition o *uilding wor$s o 3&ternal wor$s and services o *uilding services o 4onstruction staging costs o 3S# and infrastructure costs o Furniture6equipment o Special equipment o Fees o 4ontingency allowances o Special factors o +ocality allowance o #elay allowance for escalation and rise and fall o Asset realisation o 4ommissioning costs. Recurrent Costs % a statement of the recurrent cost implications of the preferred option, including both operational and asset costs, o 'perational Staffing Cehicles Support services 'ther ancillary operating costs. o Assets Temporary accommodation6services 3nergy 2aintenance 4ommissioning costs. Drawin s % development plans of all options being considered and refinement of the preferred option8s9 to concept plan level. 8'n small simple pro!ects scale I,IHH, on other pro!ects scale I,FHH. #rawings should clearly identify the scope of new and refurbished wor$s, future e&pansion, surplus assets and staging of wor$s9 !mplementation "ro ram % develop a proposed timetable for implementation of the pro!ect including staging of wor$s, and associated cash flow pro!ection that incorporates any time constraints, which may be imposed by associated wor$s or other relevant factors such as approval processes. #$ote% t&e approval process varies for pro'ects procured under "artners&ips (ictoria) "rocurement Met&od % provide a preliminary statement of the preferred procurement methods considered applicable for the pro!ect 8e.g. traditional lump sum, construction management, design and construct9 Analysis and Evaluation M The report should provide an analysis and assessment of all viable options. The evaluation process should outline the criteria for assessment and the !ustification for the preferred option should be clearly articulated

Strate ic *usiness Case % The Feasibility Study report will provide a summary of the outcomes of The Strategic *usiness 4ase. "reliminary *usiness Case % )nderta$en following the completion of the Schematic #esign, however, there may be circumstances necessitating the preparation of this /eport following the completion of the Feasibility Study phase.

<ey 4oncepts for a Feasibility Study


The goal of the feasibility study is to determine whether or not there is a reasonable e&pectation that the co%op>s business can be financially viable. *y financially viable we mean that all the co%ops e&penses can be paid including the members> required wages and still have enough money left over to pay any loans or ma$e new investments for the development of the co%op. The following outlines some $ey concepts you need to do this assessment. They will help you develop a basic financial model of the business.

:ricing
There are a number of reasons to start your analysis with pricing. The revenue potential of your co%op is dependent upon the price and number of products6services you sell. )nless you are starting with a completely new product or service in the mar$et place, there will already be an accepted range of prices for the product or service you are going to provide. The price you charge will therefore be a $ey determinant of mar$et acceptance of your product or service. 'ne of the $ey steps in determining what may be a reasonable price for your product6service is to compare it with those who will be your competitors. =ou need to loo$ at similar products or alternative products to determine who your competitors are and what prices they are charging. -n setting the price for your product relative to the competing products you must determine whether or not yours has any unique features, its quality relative to the competitors, etc. -t is also important to determine how big the mar$et is for your product and is it a discretionary purchase or something the customer still needs when times are financially tight. 'nce you have a sense of what price you can charge and an estimate of how many products you can sell, you can go on to the ne&t question % at this particular price will enough customers purchase this particular good or service to pay the wages, e&penses and surpluses 8profits9 which the co%op requires to be viable and meet the members> needs. To ta$e this ne&t step you will need to understand some basic financial concepts. Revenue /evenue is the money generated by the co%op through sales of goods and6or services. The total revenue is a function of the number of items sold times their price. Cost of 2oo's !ol' +C%2!, 4'5S is the amount the co%op must spend to purchase and or produce the products or services so that they are ready to sell. -f the co%op is a retailer, 4'5S includes the cost of the products and the cost of freight to have the goods delivered to the store. For the manufacturer it would include the cost of raw materials with freight and all production inputs such as labour that are required to produce the item ready for sale. 2ross Margin The gross margin is the difference between the revenue generated from the sales of goods and services and the 4'5S. -t can be e&pressed in dollars or as a percentage of revenue. The gross margin is the amount of money resulting from sales that the co%op can use to pay their other e&penses 8see below9 with hopefully some left over for a surplus 8profit9. Expenses

3&penses are all the day%to%day costs of running the business. (owever it is important to understand there are different types of e&penses and to learn to identify what type of e&pense a particular cost is. This is important for the later analysis of whether or not you can e&pect your business to be profitable. Fixe' Expenses These are e&penses for a particular period 8say I year9 which are incurred no matter what the co%op>s level of sales are. 3&amples include, rent, insurance, telephone, boo$$eeping costs, advertising, heat and lights, interest payments on loansS, etc. For the feasibility analysis it is important to include the minimum level of income required for each member so that they can wor$ on the business. This is a simple calculation for a retail operation as all the wages can be included here. (owever for manufacturing operation this is more complicated, as some of the employee>s necessary income will be included as labour e&pense in the 4'5S calculation. The balance of the members> wages needs to be included in the fi&ed e&penses. Another e&pense which requires special mention is depreciation e&pense. When the co%op buys assets such as equipment, or renovations to its store or offices 8any item which has a useful life of many years and that will be used over and over again9 the initial cost is not classed as an e&pense but is classed as an asset 8something the co%op owns9. (owever a portion of the cost is allowed to be allocated as an e&pense each year. This portion is the depreciation e&pense. The co%op usually follows the amounts set by the 4anada /evenue Agency to determine the amounts allowed to be classed as an e&pense for ta&ation purposes.9 S ;ote that the principal payments on loans are not an e&pense,they must be paid from the surplus 8profit9 of the business or from additional investments 8over time9 by the members. This is very important because it means that a co%op with loans to repay, in order to be viable, must at least ma$e enough profit to pay its loans. 3aria le Expense These are e&penses that are incurred as a function of the volume of sales generated. For e&ample in a construction firm, the more different !ob sites going that need supervision, the higher the travel cost will be for the supervisor. -n a wholesaler, the more sales made, the greater the number of shipping crates will be required. For a small co%op, variable e&pense can usually be ignored for purposes of the feasibility analysis. Tust be sure to ma$e a reasonable estimate of the annual e&pense for the item and include it in the fi&ed e&pense category. !urplus +Profit, :rofit is the difference between revenue generated less the 4'5S and the total e&penses incurred for a particular period. )reakeven Calculation At this stage, if you have been thin$ing about your co%op business idea you will have a pretty good idea of what is the price you can get for your product, what it will cost you to buy or manufacture them, and also what the other e&penses are that you must pay in order for the business to operate. ;ow you must ta$e the ne&t step help to determine if the business can be viable. To do this we will start by doing a brea$even analysis. This analysis can be done by determining the number of units 8products9 you need to sell, if you are manufacturing, or alternately the total value of the sales 8numbers of units time the price9 in dollars that are required. As was noted above the gross margin is the money available to cover your other e&penses, the brea$even calculation is based on this fact. .um er of units sol' re$uire' to reakeven

For this calculation you are first going to determine the gross margin per product, i.e. the price of the product less the 4'5S for the product. When you divide this amount into the fi&ed costs, you will find out how many units you need to sell to cover these costs. This is the brea$even number of units that will need to be sold. Re$uire' Profit/ As noted above, to be viable a co%op is li$ely going to require a surplus 8profit9 to pay for its loans and to have money to further develop its business, buy new inventory or equipment, and purchase other assets needed to develop the business. The co%op must determine how much money this is li$ely to be and add this required profit to the brea$even calculations done above. 3ia ilit# Decision *y now you will have a simple model of how your business wor$s. What products or services it will provide, and at what price. =ou will $now who your competitors are and will be getting the feel for whether or not your products have a good chance of being bought by customers. The brea$even analysis has shown how many units you need to sell or what are the total sales required. The $ey question now is % do thin$ you can achieve those sales? This is the time to be very hard%headed and conservative in your estimates. -t is also a time when you face one of the $ey e&periences of business M having to ma$e a decision and !udgement about the future based upon your best guesses, with no certainty that you will be right. )ltimately, if you proceed it will be based finally on the feasibility analysis, your gut reaction in assessing this analysis and your commitment to succeed.

Types of Feasibility Study


4echnical Feasi ilit# % #oes the company have the technological resources to underta$e the pro!ect? Are the processes and procedures conducive to pro!ect success? !che'ule Feasi ilit# % #oes the company currently have the time resources to underta$e the pro!ect? 4an the pro!ect be completed in the available time? Economic Feasi ilit# % 5iven the financial resources of the company, is the pro!ect something that can be completed? The economic feasibility study is more commonly called the cost6benefit analysis. Cultural Feasi ilit# % What will be the impact on both local and general cultures? What sort of environmental implications does the feasibility study have? 5egal(Ethical Feasi ilit# % What are the legal implications of the pro!ect? What sort of ethical considerations are there? =ou need to ma$e sure that any pro!ect underta$en will meet all legal and ethical requirements before the pro!ect is on the table. Resource Feasi ilit# % #o you have enough resources, what resources will be required, what facilities will be required for the pro!ect, etc. %perational Feasi ilit# % This measures how well your company will be able to solve problems and ta$e advantage of opportunities that are presented during the course of the pro!ect Marketing Feasi ilit# % Will anyone want the product once its done? What is the target demographic? Should there be a test run? -s there enough bu00 that can be created for the product? Real Estate Feasi ilit# % What $ind of land or property will be required to underta$e the pro!ect? What is the mar$et li$e? What are the 0oning laws? (ow will the business impact the area? Comprehensive Feasi ilit# % This ta$es a loo$ at the various aspects involved in the pro!ect % mar$eting, real estate, cultural, economic, etc. When underta$ing a new business venture, this is the most common type of feasibility study performed.