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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?
What are the broad categories of industries?
A feasibility study is only intended for new projects.
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List two factors affecting the preparation of a feasibility study.
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A feasibility study should be _____ in order to convince investors.
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What is one limitation of a feasibility study?
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Name one purpose of a feasibility study.
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Match the type of industry with its description:
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What is a feasibility study?
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What is the main purpose of conducting a feasibility study?
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A business plan is developed before conducting a feasibility study.
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Name two conditions that make a business opportunity feasible.
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Which of the following is NOT a reason to conduct a feasibility study?
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A feasibility study helps identify potential ______, challenges, strengths, weaknesses, opportunities, and threats.
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The opportunity must address a genuine need or solve a problem with proven ______ demand.
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What does resource estimation involve?
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Which condition refers to the skills and effectiveness of the entrepreneur and the management team?
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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.
