Entrepreneurship Module 4: Prefeasibility Study

Module 4: Prefeasibility Study

• A prefeasibility study is a crucial first step in any entrepreneurial venture.
• It serves as a roadmap for assessing the viability of a new business idea.
• It helps entrepreneurs make informed decisions about resource allocation and future development.

Importance of Prefeasibility Studies

• Reduced Risk: A prefeasibility study identifies potential challenges and risks, enabling entrepreneurs to address them proactively, thereby mitigating financial losses or project failures.
• Improved Funding Prospects: A well-executed prefeasibility study demonstrates a business venture's viability and potential, attracting investors and increasing the likelihood of securing funding.
• Enhanced Decision Making: By providing comprehensive data and insights, a prefeasibility study equips entrepreneurs to make informed decisions regarding market entry, resource allocation, and future strategies.
• Successful Implementation: The insights gained from a prefeasibility study provide a foundation for successful project implementation, ensuring alignment with market needs and resources.

Characteristics of a Pre-feasibility Study

• Task Completion: 5% to 15% of initial tasks are usually complete.
• Cost Estimate Accuracy: Cost estimates are typically accurate within ±30%.
• Contingency: Bottom-line contingency is usually ±20%.
• Report and Review: Draft reports require substantial time for reviews and final approval, which affects project timelines.
• Supporting Studies: Consumer surveys, socio-economic analyses, expert opinions, and market trend research are included in the normal cost range (0.5-2% of project value).

What is a Pre-feasibility Study?

• Early-stage analysis of a potential business idea.
• Conducted by a small team to provide stakeholders with basic information.
• Aims to assess project logistics, capital requirements, challenges, and other relevant factors for decision making.
• A preliminary step before significant investment decisions.

When and Why Companies Undertake Pre-feasibility Studies

• First exploration of a potential investment opportunity.
• Follows a preliminary resource report and a basic project model.
• Used to gather crucial information prior to substantial investments, such as licensing or proprietary software.

Information Included in a Pre-feasibility Study

• Business models and product designs
• Factors impacting the project (community issues, operational obstacles, socioeconomic factors, etc.)
• Detailed operational designs
• Cost estimates
• Project risks and safety issues
• Various options for addressing potential issues

Positive and Negative Study Results

• Positive results lead to a feasibility study.
• Negative outcomes may result in abandoning the project or revisiting the concept.

Purpose of Pre-feasibility Studies (Market Research)

• Verify investment opportunities' promise—sufficient to make a firm decision.
• Confirm project viability from diverse perspectives (marketing, manufacturing, etc.)
• Identify critical project aspects requiring in-depth analysis.
• Gather comprehensive technical, economic, and commercial data for conclusive investment decisions.

Key Components of a Prefeasibility Study

• Market Analysis: Examining target market size, growth potential, competition, customer needs, industry trends.
• Technical feasibility: Evaluating raw materials, labor, infrastructure, and essential resources.
• **Financial and economic feasibility:**Assessing financial feasibility, projected revenue, expenses, profitability, economic impact.
• Risk assessment: Identifying potential risks, assessing likelihood and impact, developing mitigation strategies.
• Conclusion and recommendations: Summarizing findings, offering insights, providing recommendations.

Market Analysis and Opportunity Identification

• Target Market Analysis: Defining ideal customer profile (demographics, psychographics, buying behavior).
• Industry Analysis: Evaluating market size, growth potential, trends, regulations, competitive landscape (market size, growth rate, key players, barriers to entry).
• Opportunity Assessment: Identifying unmet needs, emerging trends, potential market gaps.

Technical and Operational Feasibility

• Technology Assessment: Determining necessary technologies for production, operations, and customer service.
• Resource Availability: Evaluating the availability of raw materials, labor, infrastructure, and other resources.
• Operations Processes: Designing efficient processes for production, supply chains, and customer service.
• Regulatory Compliance: Ensuring compliance with all relevant industry regulations, permits, and licensing requirements.

Financial and Economic Viability

• Revenue Projections: Forecasting sales revenue based on market analysis.
• Cost Analysis: Identifying and quantifying all production, marketing, administrative, and operational costs.
• Profitability Analysis: Calculating essential profit margins (gross, operating, net).
• Break-Even Analysis: Determining the point where revenue covers all costs.
• Investment Requirements: Estimating total capital expenditure for startup, operations, and growth.

Risk Assessment and Mitigation Strategies

• Market Risk: Assessing potential fluctuations in demand, competition, and industry trends.
• Operational Risk: Evaluating production, supply chain, technology, and operational aspects.
• Financial Risk: Analyzing financing, cash flow, profitability, and overall financial stability.
• Regulatory Risk: Estimating potential changes, permits, requirements, regulatory issues.

Conclusion and Recommendations

• Key Findings: Summarizing insights and conclusions from the study.
• Recommendations: Providing actionable recommendations (further market research, refining the business model, additional funding).

Next Steps

• Developing detailed business plans.
• Securing financing.
• Launching the venture.

Resources Needed

• Financial Resources
• Human Resources
• Technical/Scientific Experts (for technology, materials, design)
• Technical Resources/Machines

Prefeasibility vs Feasibility Studies

• Scope: The prefeasibility study is narrow while feasibility is comprehensive.
• Depth: Preliminary investigation in prefeasibility; in-depth research in feasibility.
• Cost: Lower and faster turnaround in prefeasibility; higher cost and longer timeline in feasibility.
• Purpose: Viability assessment in prefeasibility; investment justification and project planning in feasibility.

Additional Information (Specific Example)

• Product specifics (e.g., medical shoes with built-in massage technology).
• Target customers (e.g., people experiencing heel pain, especially older adults).
• Expected demand (e.g., 60% of target customers).
• Competitor analysis (e.g., existing medical shoes and devices).

Explore the significance of prefeasibility studies in entrepreneurship through this quiz. Understand how these studies help mitigate risks, improve funding prospects, and enhance decision-making for new business ideas. Test your knowledge on the essential elements of conducting a prefeasibility study.