Chapter 1: Business Feasibility PDF

CHAPTER 1: DOING THE FEASIBILITY STUDY OBJECTIVES: Recognize what a feasibility study is Contrast feasibility study and business plan Appreciate the need for a feasibility study before a business starts; Appraise the conditions that makes the business opportunity feasible; and Wh...

CHAPTER 1: DOING THE FEASIBILITY STUDY OBJECTIVES: Recognize what a feasibility study is Contrast feasibility study and business plan Appreciate the need for a feasibility study before a business starts; Appraise the conditions that makes the business opportunity feasible; and What is a Feasibility Study? - It is a technique to examine and - A feasibility study is carried out assess a startup business to find to help all those concerned in out if it is technically doable, the business venture in making logically within a projected cost, a judgment that will be valuable and adequately profitable. to all concerned.  Feasibility Study vs. Business Plan Feasibility Study Business Plan A feasibility study is carried out A business plan is developed only with the aim of finding out the after it has been established that a workability and profitability of a business opportunity exist and the business venture. venture is about to commence. A feasibility report is filled with It is made up of mostly tactics and calculations, analysis and strategies to be implemented in estimated projections of a business order to start and grow the opportunity business. A feasibility is all about business Business plan deals with business idea viability. growth plan and sustainability. A feasibility study report reveals Helps the entrepreneurs raise the the profit potential of a business needed start-up capital from FIVE REASONS TO CONDUCT A FEASIBILITY STUDY BEFORE STARTING A BUSINESS 1 Profitability Assessment - Evaluates if the business will be worth the time, effort, and resources, helping to avoid investing in unprofitable ventures. 2 Market Validation - Demonstrates the existence of a market, liquidity, and expected return on investment to entrepreneurs and investors. 3 Risk Identification - Identifies potential flaws, challenges, strengths, weaknesses, opportunities, threats, and unforeseen circumstances to mitigate risks. 4 Resource Estimation - Estimates required financial, human, and technological resources, including workforce needs and salary scales. Capital and Budget Planning 5 - 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 1 Real Demand The opportunity must address a genuine need or solve a problem with proven market demand. 2 Good Return on Investment: - It should offer strong potential for profitability and a solid return on investment. 3 Competitiveness - The opportunity must be competitive or uniquely positioned to stand out in the market. 4 Meet the objectives of the entrepreneur - The business must align with the entrepreneur’s goals and objectives. The competence of the entrepreneur and his team 5 - Success depends on the skills and effectiveness of the entrepreneur and the management team. Evaluating the Profit Potential of Business Ideas Market Demand 1 1. Ensure there is a genuine customer base and need for the product or 2 Market Size service. Assess the size of the existing Market Type 3 market. Determine if it’s a promising or mature market. 4 Category Identify if it’s in a fresh or mature Prospective Customers 5 category. Understand who they are. 6 Need Examine social and economic Competition 7 impacts. Evaluate the competitive landscape.  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. Is the business idea unique? 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. What is the price point? Affordability – Set a price that is attractive to customers and aligns with their spending power. Market Fit – Understand customer spending habits to price effectively Will investors be interested? Attractiveness – Gauge if the idea will appeal to investors by demonstrating its potential for profitability and market success.  Is the business idea hard to replicate? Barriers to Entry – Ensure the idea has strong differentiators to prevent easy replication and minimize competition. Can the business idea last? Is it scalable? Sustainability – Verify that the idea remains relevant and valuable long-term, avoiding trends or fads for enduring success. What is the driving force of the business? Passion Over Profit – Focus on a genuine commitment to solving customer problems rather than just financial gain to enhance the chance of success.  The format of a feasibility study may differ Feasibility Study Format in complexity from one problem to another. In its most fundamental structure, the feasibility study seeks to answer the Purpose 1 question: “Is it feasible?” Determines if a business idea is feasible and financially viable. 2 Management Study Analyze the management team and organizational MARKET STUDY structure. 3 Assess demand and competition. 4 Technical and Operations Study Evaluate technical requirements and operational processes. Financial Study 5 Review financial projections and funding needs. 6 Socio-Economic Study Examine social and economic impacts. PROCESS 7 Break down the venture, evaluate parts using various metrics, and provide a knowledgeable view of the business proposal.  RESEARCH AND METHODOLOGY Objectives: After studying this chapter, the student should be able to Recognize dissimilarities between primary and secondary sources of data: Contrast probability versus non-probability sampling techniques Understand different sampling techniques Know the target population, and Recognize The main objectivewhat is reserve of research instrument and methodology and itsstudy is in a feasibility to understand the market and establish whether sufficient demand exists validation. to make the startup venture successful.  RESEARCH AND METHODOLOGY Objectives: After studying this chapter, the student should be able to Recognize dissimilarities between primary and secondary sources of data: Contrast probability versus non-probability sampling techniques Understand different sampling techniques Know the target population, and Recognize The main objectivewhat is reserve of research instrument and methodology and itsstudy is in a feasibility to understand the market and establish whether sufficient demand exists validation. to make the startup venture successful. Data Collection in Feasibility Study Purpose Collect data from end-users to understand current and predicted usage and assess market impact. Methods Use surveys, questionnaires, and polls to gather insights. Unique Offerings What sets your business idea apart? Is it truly original or does it offer a significant improvement over existing solutions? Highlighting the unique features and benefits of your product or service will attract attention and potential customers. Evidence of Demand Establish a price point that is both attractive to customers and aligns with market trends. Consider affordability, market fit, and your target audience's spending habits to ensure you find a profitable price point. Data Collection for Your Feasibility Study Primary Data These are data originated by the researcher for the specific purpose of addressing the research problem/survey. Examples of primary sources includes: Personal papers Speeches Letters (Both personal and business) Oral Histories Diaries and journals Minutes of meetings Photographs, paintings, sketches, original maps, etc. Vital records Advertisement, posters, and banners Material Artifacts Memoirs Novels, essays, poetry, music, art, and audio or video recordings Genealogy records Computer Software, email archives News footage Newspaper articles Data Collection for Your Feasibility Study Secondary Data These are data collected from some purpose other than the problem at hand. Secundary sources are data that already exists like: a. Previous research b. Official statistics c. Mass media products d. Diaries e. Letters f. Government reports g. Web information h. Historical data and information SAMPLING DESIGN Sampling Design is used to gather data from a subset of the population instead of surveying everyone. A sample is a subset of the population being studied. TYPES OF SAMPLING DESIGN 1. Scientific Sampling (probability sampling) – Probability sampling is a sampling technique where each element of the population has a probabilistic chance of being selected for the sample. 2. Nonscientific Sampling (non-probability sampling) - Non- probability sampling is a sampling technique where the samples are gathered in a process that does not give all the individuals in the population equal chances of being selected. PROBABILITY SAMPLING TECHNIQUES 1. Simple Random Sampling – Each element in the population has an equal chance of being selected. 2. Systematic Sampling – Elements are selected at regular intervals from the population. 3. Stratified Sampling – 4. Cluster Sampling – a. Area sampling – the clusters consists of geographic areas like countries, housing tracts, blocks or other areas description. b. Multistage – group into hierarchy of units/sampling is done consecutively NON-PROBABILITY SAMPLING TECHNIQUES Convenience Sampling – Selecting easily available elements for the sample. Judgmental Sampling -Selecting elements based on the researcher’s judgment. Quota Sampling – Selecting elements to ensure the sample has the same distribution of characteristics as the population. Snowball Sampling – Using referrals from initial participants to locate additional participants. Purposive Sampling -Selecting individuals based on their representativeness of the TARGET POPULATION - The group of individuals or objects the researcher wants to study. - Inferences are made about this population. RESEARCH INSTRUMENTS - Tools used to collect data from respondents. - Questionnaires with standardized questions and response options. - Address study objectives and collect demographic information.  GUIDELINES FOR SURVEY QUESTIONS 1. Clarity – Contain only one idea or question. 2. Scope – Define the time period or activities relevant to the question. 3. Neutrality – Avoid leading respondents to specific answers. 4. Understandability – Use simple language that is easy to comprehend. 5. Response Options – Clear, consistent, and cover all possible responses. 6. Categorical Responses – Mutually exclusive and exhaustive. 7. Numeric Responses – Guide respondents to  INSTRUMENT VALIDATION - Ensure the research instrument is clear, accurate, and effective. Process: Recruit 10+ sample representatives. Have them answer the instrument and provide feedback. Refine the instrument based on suggestions and identified inconsistencies. Explain the validation process and participants involved. DATA PROCESSING METHOD After retrieval of the survey questionnaire, the researcher tabulates and processes the data either manually or by machine. The use of software for data analysis particularly Statistical Package for the Social Sciences (SPSS) versions 20 is recommended. EXECUTIVE SUMMARY Objectives: Define an executive summary; Locate executive summary in a feasibility study; Discuss important considerations in executive summary writing; Outline the executive summary of the feasibility study  Placement of Executive Summary in the Feasibility Study An Executive Summary should be the first thing in the feasibility study, after the Table of Contents (while some writers of feasibility study place the Executive Summary before the Table of Contents). Even though the executive summary will appear first in the feasibility study it should always be written last, after all the supporting information has been developed. Moreover, feasibility study writers frequently make some significant findings as studies are being written. In this manner all the information in the rest of the feasibility study can be more easily summarized.  Important Consideration in Executive Summary Writing Executive summaries ideally should only be about one page in length. Make certain the executive summary is absolutely no longer than two pages in length.  The executive summary may consist of: 1. Business structure and ownership - What is the business' structure? Who will own the business? If the business will be a partnership, state the roles of the partners (i.e., working or general partner.) 2. The products or services being sold (be general - do not include a long list of products or in-depth product descriptions) 3. How and who to market - Will the business be local, national, or Internet based? Are you selling to men, women, kids, businesses, etc.? 4. Positive viewpoint - Use brief, positive, business forecasts to project the growth of the business and the industry  Keep the Executive Summary Refined Using a few sentences from each part in the feasibility is often a good method to construct the executive summary. Yet, keep in mind that this one part may be the most essential part in the document when it comes to high-level decision makers choosing to provide capital in business idea. It also serves as an invitation to discover more about the information included in the feasibility study.  Sample Executive Summary Alan’s Best Chocolates (ABC) is a leader in the sales of chocolates and confections throughout the United States. ABC’s products are sold from 50 stores throughout the country and maintain a reputation for superior taste and quality. While ABC’s sales have grown over the past 10 years, the rate of growth has slowed significantly. One key factor for this slowing growth rate is the shift in the marketplace to purchasing chocolates and confections online. While ABC maintains a web site, it is not capable of hosting an e-commerce platform for online sales.  Sample Executive Summary ABC’s sales occur only in its brick and mortar facilities and the company is losing potential customers to competitors who provide online sales. The chocolate and confections marketplace is healthy and shows a continued growth trajectory over the next five to ten years. ABC is in a position to capitalize on this online marketplace by leveraging existing technologies, industry best practices, and an aggressive marketing and sales campaign to ramp up the company’s growth projections for the foreseeable future.