Understanding Feasibility Studies

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Questions and Answers

What is the purpose of a feasibility study?

To test the viability of a business project in all areas.

Which of the following is NOT a quality of a good feasibility study?

Comprehensive

Objective

Complex (correct)

Reliable

What are the broad categories of industries?

Extractive Industries

Manufacturing Industries

Service Industries

All of the above (correct)

A feasibility study is only intended for new projects.

False Signup and view all the answers

List two factors affecting the preparation of a feasibility study.

Type of industry and size of the project. Signup and view all the answers

A feasibility study should be _____ in order to convince investors.

Comprehensive Signup and view all the answers

What is one limitation of a feasibility study?

Information Availability Signup and view all the answers

Name one purpose of a feasibility study.

To determine the recovery period of capital investment. Signup and view all the answers

Match the type of industry with its description:

Extractive Industries = Resources extraction like mining Manufacturing Industries = Production of goods Service Industries = Provision of services Signup and view all the answers

What is a feasibility study?

A technique to examine and assess a startup business to find out if it is technically doable, logically within a projected cost, and adequately profitable. Signup and view all the answers

What is the main purpose of conducting a feasibility study?

To assess the workability and profitability of a business venture Signup and view all the answers

A business plan is developed before conducting a feasibility study.

False Signup and view all the answers

Name two conditions that make a business opportunity feasible.

Real Demand and Good Return on Investment. Signup and view all the answers

Which of the following is NOT a reason to conduct a feasibility study?

Employee Selection Signup and view all the answers

A feasibility study helps identify potential ______, challenges, strengths, weaknesses, opportunities, and threats.

flaws Signup and view all the answers

The opportunity must address a genuine need or solve a problem with proven ______ demand.

market Signup and view all the answers

What does resource estimation involve?

Estimating required financial, human, and technological resources. Signup and view all the answers

Which condition refers to the skills and effectiveness of the entrepreneur and the management team?

Competence of the Entrepreneur Signup and view all the answers

Study Notes

Defining Feasibility Studies

There is no universal agreement on a definition for a feasibility study.
Various bodies and industries haven't standardized a definition.
Preparing a feasibility study is not a formally established, certified profession.

Different Interpretations of Feasibility Studies

Cabrera (2000): A feasibility study examines a business's viability and profitability.
Dictionary Definition: This analysis assesses the practicality of a plan based on market conditions, competition, technology, workforce, and resources.
Investopedia: Feasibility studies evaluate a project's ability to be completed successfully, taking into account legal factors, economic factors, technological factors, scheduling, and other considerations.
Wikipedia: This analysis assesses a project's potential, informed by thorough research, to guide decision-making.

Understanding the Nature of Feasibility Studies

A feasibility study involves a systematic inquiry into the viability of a proposed business project.
It focuses on assessing all areas of the project, with a particular emphasis on analyzing its profitability.
Key aspects include:
- A systematic and methodical approach to gathering information.
- A focus on proposed business activities.
- Assessment of project viability across all operational aspects.
- Evaluation of the potential for profitability.

The Purposes of Conducting Feasibility Studies

Feasibility studies aim to determine a business project's viability in all areas.
They serve multiple purposes, including:
- Promoting the sustainability of existing business ventures.
- Simplifying the evaluation of a project's overall success.
- Seeking additional working capital from financial institutions.
- Determining the investment's return period and expected return on investment.
- Measuring actual project outcomes against the study's findings.
- Mitigating potential business challenges during implementation.
- Meeting the requirements set by investors for the proposed business project.

Qualities of a Successful Feasibility Study

To effectively convince investors, a feasibility study should possess the following qualities:
- Comprehensive: It should encompass all relevant aspects of the project.
- Objective: It should be unbiased and based on facts and evidence.
- Simple: It should be easy to understand and follow.
- Reliable: It should be based on accurate and verifiable information.

The Benefits of Feasibility Studies

Feasibility studies provide numerous benefits:
- Scientific Project Design: They contribute to a well-structured and informed project design.
- Minimizing Implementation Risks: By identifying potential risks early, they help reduce the likelihood of encountering problems during execution.
- Reliable Decision-Making: They provide a strong foundation for informed and sound decision-making.
- Evaluating Financial Aspects: They examine the financial viability and soundness of the project.
- Assessing Profitability and Sustainability: They assess the project's potential for profitability and long-term sustainability.

Limitations of Feasibility Studies

Feasibility studies are not without their limitations:
- Information Availability: Accessing the necessary information can be challenging.
- High Costs: Conducting a thorough feasibility study can be expensive.
- Confidentiality Issues: Securing confidential information from stakeholders can be difficult.
- Expertise Requirements: Gathering a team with the necessary expertise can be challenging.
- Forecast Limitations: Predicting future outcomes is inherently uncertain.

Factors Influencing Feasibility Study Preparation

Several factors influence the preparation of a feasibility study:
- Type of Industry: The specific industry plays a crucial role in shaping study parameters.
- Project Size: The scale of the project, measured by investment needs, affects the depth of the study.
- Purpose of the Study: The specific objective behind the feasibility study determines its focus and scope.
- Party Preparing the Study: The expertise and background of those conducting the study influence its analysis and conclusions.
- Requirements of Prospective Investors: Investor needs and expectations shape the content and format of the feasibility study.

Industry Classifications

Industries are categorized into three broad categories:
- Extractive Industries: These industries focus on extracting raw materials from the earth.
- Manufacturing Industries: These industries transform raw materials into finished goods.
- Service Industries: These industries provide intangible services to customers.

Project Size and Complexity

The size of a project significantly impacts the complexity and scope of the feasibility study.
- Large-Scale Projects: These require comprehensive planning, data collection, and analysis.
- Smaller Projects: They generally involve less complexity and lower costs.

Multiple Purposes of Feasibility Studies

Feasibility studies are not limited to evaluating new projects. They can also be applied to existing businesses to assess:
- Expansion plans
- New product offerings
- Competitive strategies
- Launch new services

Team Composition for Feasibility Studies

Feasibility studies typically require a team of experts with diverse skills, including:
- Economist
- Industrial Engineer
- Mechanical Engineer
- Marketing Consultant
- Accountant
- Lawyer
- Human Resource Officer

Adapting to Investor Requirements

Feasibility studies should be tailored to meet the specific information needs of prospective investors. They are essential for ensuring transparency and providing investors with a comprehensive picture of the potential project before making their investment decisions.

What is a Feasibility Study?

A feasibility study is a method for evaluating a startup business to determine its viability, which is to say if it can actually be done, if it makes logical sense within a projected cost, and if it is likely to be profitable.

Feasibility Study vs. Business Plan

A feasibility study is conducted to determine the workability and profitability of a business venture.
A business plan is developed only after it has been established that a business opportunity exists and the venture is about to commence.
A feasibility report is filled with calculations, analysis and estimated projections of a business opportunity, the business idea viability.
It is made up of mostly tactics and strategies to be implemented in order to start and grow the business
A business plan deals with business growth plan and sustainability.
A feasibility study report reveals the profit potential of a business
A business plan helps the entrepreneurs raise the needed start-up capital from investors.

Reasons To Conduct a Feasibility Study Before Starting a Business

Profitability Assessment: Evaluates if the business will be worth the time, effort and resources, and helps to avoid investing in unprofitable ventures.
Market Validation: Demonstrates the existence of a market, liquidity, and expected return on investment to entrepreneurs and investors.
Risk Identification: Identifies potential flaws, challenges, strengths, weaknesses, opportunities, threats, and unforeseen circumstances to mitigate risks.
Resource Estimation: Estimates required financial, human, and technological resources, including workforce needs and salary scales.
Capital and Budget Planning: Determines the amount of capital needed, and helps in establishing budget plans, working capital, and cash flow projections.

Five Conditions for a Feasible Business Opportunity

Real Demand: Addressing a genuine need or solving a problem, having proven market demand.
Good Return on Investment: Strong potential for profitability and a solid return on investment
Competitiveness: Being competitive or uniquely positioned to stand out in the market.
Meet the Objectives of the Entrepreneur: The business must align with the entrepreneur’s goals and objectives
Competence of The Entrepreneur and Team: Success depends on the skills and effectiveness of the entrepreneur and the management team

Evaluating the Profit Potential of Business Ideas

Market Demand: Ensure there is a genuine customer base and need for the product or service.
Market Size: Assess the size of the existing market.
Market Type: Determine if it’s a promising or mature market.
Category: Identify if it’s in a fresh or mature category.
Prospective Customers: Understand who they are.
Need: Examine social and economic impacts.
Competition: Evaluate the competitive landscape.
Problem?: Does the business idea solve the problem?
Identify Problem: Ensure the business idea addresses a significant problem affecting the owner and their network, indicating broader relevance
Analyze Demand: Examine existing products or services addressing the same problem. A solution that improves on current options will attract attention and potential revenue.
Originality: Ensure the idea is distinctive or improves upon existing solutions.
Value Addition: Enhance the idea with unique features or better value to gain a competitive edge.
Affordability: Set a price that is attractive to customers and aligns with their spending power.
Market Fit: Understand customer spending habits.

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Description

This quiz delves into the concept of feasibility studies, exploring various definitions and interpretations from different sources. Learn about the aspects that make a feasibility study essential for assessing the viability and profitability of a business or project.