FEASIBILITY STUDY

A Feasibility Study is made to determine whether or not a project is likely to

succeed or will be economically viable. No one constructs a house without making a

plan or design an estimate of the cost of materials and labor. Most companies have

experts to conduct a feasibility study before launching big-scale projects. Furthermore, a

feasibility study tests the viability of an idea, a project or even a new business. The goal

of a feasibility study is to place emphasis on potential problems that could occur if a

project is pursued and determine if, after all significant factors are considered, the

project should be pursued. Feasibility studies also allow a business to address where

and how it will operate, potential obstacles, competition and the funding needed to get

the business up and running. On the other hand, 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 project 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. Determining early that a

business idea will not work saves time, money and heartache later. A feasible business

venture is one where the business will generate adequate cash-flow and profits,

withstand the risks 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

existing business, an expansion of current business operations or a new enterprise for

an existing business.
Components of a Feasibility Study

THE PLAN

The project including the rationale, has to be described in detail. A sketch should

accompany the description if necessary. This selection should answer the questions: 1.)

What? 2.) Why? 3.) How? It should also include a time frame – the appropriate time

needed to complete the project.

The plan could be about putting a printing press, identifying what equipment /

facilities are needed, or explaining why is there a need for printing press. If the

proponent is a school official he can site the need for a school press to take care of the

printing of books, the school, the organ, the school yearbook, receipts, enrollment

forms, etc. The proponent can submit preliminary inquiries on successful school printing

presses and on the availability of equipment/facilities needed as well as the space for

the printing press.

THE COST

The estimated cost of the equipment and facilities entails a canvassing of the

market. What models are available and where? Are they second hand or brand new?

SOURCE OF FUNDING

If there is a provision in the school or company budget, the approval of the

project is 50% sure. If there is no allocation for the project, or if the allocation is not

sufficient is there a possibility of getting loans from banks? How much is the interest?
Would the income from the project be able to pay amortization on the loans when they

are due?

One other source of funding is grants form funding agencies. However, if the

project is strictly a commercial venture, this source if funds is not to be considered at all.

Still another source is fund drives, usually resorted to by church and charitable

organizations.

MANPOWER OR PERSONNEL

How many persons are needed for the project? What are their job titles and job

description? What salary is recommended for each? If the job is highly technical, has

the proponent scouted around for such training them here or abroad? A timetable for

the recruitment of personnel is advisable and helpful.

THE MARKET

To whom will the commercial venture cater? Will there be enough clients or

customers? This component of the feasibility study should be supported by a survey.

The viability of the project rests primarily on the stability of the market.

PROFITABILITY

The acceptability of the project will depend on whether or not it is profitable to be

undertaken. Economic profitability will call for a certain amount of return (10% to 20%)
on investment. If the project is not a commercial venture, there is a need to discuss how

the project will benefit a community or a special group of people.

Feasibility Study Outline

The outline below can be used to help you through the feasibility study process.

However, not all feasibility studies are alike. The elements to include in a feasibility

study vary according to the type of business venture analyzed and the kind of market

opportunities identified. Below is a listing of typical factors to include. However, this may

not be a complete listing of the factors that should be considered in your specific

situation. The success of a feasibility study is based on the careful identification and

assessment of all of the important issues for business success. Depending on the

business project, additional items may also be important. Remember, the basic premise

of a feasibility study is to determine the potential for success of a proposed business

venture.

Description of the Project

Identification and exploration of business scenarios.

 Identify alternative scenarios or business models of what the project will entail,

how it will be organized, and how it will generate profits. These may come from

the idea assessment or market assessment that you may have already

completed.

 Eliminate scenarios that don’t make sense.

 Flesh-out the scenario(s) that appear to have potential for further exploration.
Define the project and alternative scenarios

 Describe the type and quality of product(s) or service(s) to be marketed.

 Outline the general business model (i.e. how the business will make money).

 Include the technical processes including size, location, kind of inputs, etc.

 Specify the time horizon from the time the project is initiated until it is up and

running at capacity.

Relationship to the surrounding geographical area.

 Outline the economic and social impact on local communities.

 Describe the environmental impact on the surrounding area.

Market Feasibility

This can be based on a market assessment that you may have already completed.

Industry description

 Describe the size and scope of the industry, market and/or market segment(s).

 Estimate the future direction of the industry, market and/or market segment(s).

 Describe the nature of the industry, market and/or market segment(s). Is it stable

or going through rapid change and restructuring?

 Identify the life-cycle of the industry, market and/or market segment(s). Is it

emerging, growing, mature, declining?

Industry competitiveness
  Describe the industry concentration. Are there just a few large producers or many

small producers?

 Describe the major competitors? Will you compete directly against them?

 Analyze the barriers to entry of new competitors into the market or industry. Can

new competitive enter easily?

 Analyze the concentration and competitiveness of input suppliers and

product/service buyers.

 Describe the price competitiveness of your product/service.

Market potential

 Identify whether the product be sold into a commodity market or a differentiated

product/service market.

 Identify the demand and usage trends of the market or market segment in which

the product or service will participate.

 Examine the potential for emerging, niche or segmented market opportunities.

 Explore the opportunity and potential for a branded product.

 Assess market usage and your potential share of the market or market segment.

Access to market outlets

 Identify the potential buyers of the product/service and the associated marketing

costs.

 Investigate the product/service distribution system and the costs involved.

Sales projection

 Estimate sales or usage.

 Carefully identify and assess the accuracy of the underlying assumptions in the

sales projection.

 Project sales under various assumptions (i.e. selling prices, services provided,

etc.).

Technical Feasibility

Facility needs.

 Estimate the size and type of production facilities.

 Investigate the need for related buildings, equipment, rolling-stock, etc.

Suitability of production technology

 Investigate and compare technology providers.

 Determine reliability and competitiveness of technology (proven or unproven,

state-of-the-art, etc.).

 Identify limitations or constraints of the technology.

Availability and suitability of site

Investigate access to:

 raw materials

 transportation
  labor

 production inputs (electricity, natural gas, water, etc.)

 Investigate potential emissions problems.

 Analyze other environmental impacts.

 Identify regulatory requirements.

 Explore economic development incentives.

Raw materials

 Estimate the amount of raw materials needed.

 Investigate the current and future availability and access to raw materials.

 Assess the quality and cost of raw materials.

Other inputs

 Investigate the availability of labor including wage rates, skill level, etc.

 Assess the potential to access and attract qualified management personnel.

Financial/Economic Feasibility

Estimate the total capital requirements

 Assess the “seed capital” needs of the business project during the investigation

process and start-up, and how these needs will be met.

 Estimate capital requirements for facilities, equipment and inventories.

 Estimate working capital needs.

 Estimate start-up capital needs until revenues are realized at full capacity.
  Estimate contingency capital needs due to construction delays, technology

malfunction, market access delays, etc.

 Estimate other capital needs.

Estimate equity and credit needs

 Estimate equity needs.

 Identify alternative equity sources and capital availability - family, producers, local

investors, angle investors, venture capitalists, etc.

 Estimate credit needs.

 Identify and assess alternative credit sources - banks, government (i.e. direct

loans or loan guarantees), grants and local and state economic development

incentives.

Budget expected costs and returns of various alternatives

 Estimate the expected revenue, costs, profit margin and expected net profit.

 Estimate the sales or usage needed to break-even.

 Estimate the returns under various production, price and sales levels. This may

involve identifying “best case”, “typical”, and “worst case” scenarios or more

sophisticated analysis like a Monte Carlo simulation.

 Assess the reliability of the underlying assumptions of the analysis (prices,

production, efficiencies, market access, market penetration, etc.)

 Benchmark against industry averages and/or competitors (cost, margin, profits,

ROI, etc.).
  Identify limitations or constraints of the economic analysis.

 Calculate expected cash flows during the start-up period and when the business

reaches capacity.

 Prepare pro forma income statement, balance sheet, and other statements of

when the business is fully operating.

Organizational/Managerial Feasibility

Business structure

 Identify the proposed legal structure of the business.

 Outline the staffing and governance structure of the business along with lines of

authority and decision making structure.

 Identify any potential joint venture partners, alliances or other important

stakeholders.

 Identify the availability of skilled and experienced business managers.

 Identify the availability of consultants and service providers with the skills needed

to realize the project, including legal, accounting, industry experts, etc.

Business founders

 Character matters - are the people involved of outstanding character?

 Do the founders have the “fire in the belly” required to take the project to

completion?

 Do the founders have the skills and ability to complete the project?

 What key individuals will lead the project?

  Is there a reward system for the founders? Is it based on business performance?

 Have the founders organized other successful businesses?

Study Conclusions

 Identify and describe alternative business scenarios and models.

 Compare and contrast scenarios based on goals of the producer group.

 Outline criteria for decision making among alternatives.

Next Step

After the feasibility study has been completed and presented to the leaders of the

project, they should carefully study and analysis the conclusions and underlying

assumptions. Next, the leaders will be faced with deciding which course of action to

pursue. Potential courses of action include:

 Choosing the most viable business scenario or model, developing a business

plan and proceeding with creating and operating a business.

 Identifying additional scenarios for further study.

 Deciding that a viable business opportunity is not available and moving to end

the business investigation process.

 Following another course of action.

Why Are Feasibility Studies so Important?

The information you gather and present in your feasibility study will help you:

 Identify all the things you need to make the business work

 Pinpoint logistical and other business-related problems and solutions

 Develop marketing strategies to convince a bank or investor that your business is

worth considering as an investment

 Serve as a solid foundation for developing your business plan

REFERENCES

Alcantara, Espiritu (2010) Technical Writing for Filipino Students

Reyes, Estero, Gonzales, Ilagan, (2016) Feasibility Study of ”Health Tea”

https://www.thebalance.com/what-is-a-feasibility-study-3514853

FeasibilityStudyhttps://www.investopedia.com/terms/f/feasibility-

study.asp#ixzz58RCJTx00

https://www.extension.iastate.edu/agdm/wholefarm/html/c5-65.html