Writing Feasibility Study Chapter 1 PDF

WRITING FEASIBILITY STUDY CHAPTER 1 THE DEFINITION OF PROJECT FEASIBILITY STUDY There is no universally accepted definition of a project feasibility study due to several reasons:  No specific institution is tasked with monitoring or evaluating feasibility studies.  Professional bodies or cons...

WRITING FEASIBILITY STUDY CHAPTER 1 THE DEFINITION OF PROJECT FEASIBILITY STUDY There is no universally accepted definition of a project feasibility study due to several reasons:  No specific institution is tasked with monitoring or evaluating feasibility studies.  Professional bodies or consultancy offices have not organized to define the term authoritatively.  Preparing feasibility studies has not been formally established as a profession. VARIOUS DEFINITIONS OF PROJECT FEASIBILITY STUDY  Cabrera (2000): A systematic investigation to determine a business's viability and profitability.  Dictionary Definition: An analysis of a proposed plan’s practicality based on marketplace, competition, technology, manpower, and financial resources.  Investopedia: An analysis of a project's ability to be completed successfully, considering legal, economic, technological, scheduling, and other factors.  Wikipedia: An evaluation of a project's potential based on extensive research to aid NATURE OF FEASIBILITY STUDY The term "project feasibility study" is defined as a systematic inquiry into a proposed business activity to determine its viability in all areas with a focus on measuring its profitability level. 1. Systematic Inquiry 2. Proposed Business Activity 3. Viability in all areas, and 4. Measurement of Profitability level  PURPOSES OF A FEASIBILITY STUDY The underlying concept behind the conduct of a feasibility study is to test the viability of a business project in all areas. This is the general purpose why a feasibility study is undertaken. Corollary to this underlying premise, a feasibility study is conducted 1. to enhance the sustainability of a particular business currently undertaken; 2. to facilitate easily the evaluation of a project's success in all areas covered by the study; 3. to seek the infusion of additional fresh working capital from a financial institution; 4. to determine the recovery period of capital investment or expected return on investment; 5. to serve as measuring instrument in evaluating actual project results against what the study reveals; 6. to reduce, if it cannot be totally avoided, the expected business difficulty that maybe experienced during actual implementation; and 7. to meet and satisfy the requirements set by the investors of the proposed business project. QUALITIES OF A GOOD FEASIBILITY STUDY For a feasibility study to effectively convince investors, it should possess the following qualities: Comprehensive Objective Simple Reliable THE USEFULNESS OF A FEASIBILITY STUDY INCLUDES:  Scientific Project Design  Minimizing Implementation Risks  Reliable Decision-Making  Evaluating Financial Aspects  Assessing Profitability and Sustainability  Reliable Decision-Ma THE LIMITATIONS OF A FEASIBILITY STUDY INCLUDE: Information Availability High Costs Confidentiality Issues Expertise Requirements Forecast Limitations FACTORS AFFECTING PREPARATION OF A FEASIBILITY STUDY 1. Type of industry 2. Size of the project 3. Purpose of the study 4. Party preparing the study 5. Requirements of prospective investors  TYPE OF INDUSTRY Industries are groups of businesses with similar characteristics related to their operations, products, markets, functions, or services. They are commonly classified into three broad categories: Extractive Industries Manufacturing Industries Service Industries Industries can also be categorized by the products they offer, including automotive, fish, meat packing, entertainment, electronics, software, utilities, and chemicals.  SIZE OF THE PROJECT The size of a project, typically measured by investment requirements, impacts the feasibility study process. Larger projects, such as a multi-billion-peso brewery plant, require extensive planning, evaluation, and data collection. In contrast, smaller projects, like a candle- making venture, involve less complexity and lower costs in the feasibility study process.  PURPOSE OF THE STUDY It is a common notion that a feasibility study is solely intended for a new project. This is not the case, though. It also applies to existing businesses by providing the following information: 1. market information on the plan to expand; 2. product information on the plan to offer new product to the market; 3. competition analysis because of entrance of a new competitor, or 4. demand study on the plan to launch a new service.  PARTY PREPARING THE STUDY A feasibility study covers wide and different areas of specialization thus it cannot be performed by only one individual. A group conducting the study may include; Economist Industrial Engineer Mechanical Engineer Marketing Consultant Accountant Lawyer Human Resource Officer  REQUIREMENTS FOR PROSPECTIVE INVESTORS Feasibility study formats are not standardized and vary based on requirements from funding agencies or investors. This can lead to increased time and costs for preparation, especially if additional data or evaluations are requested. For instance, if an investor requires assumptions to be based on more than just the past year’s data, gathering the necessary information will demand more time and resources.  CLASSIFICATION OF FEASIBILITY STUDIES Feasibility studies for business enterprises can be categorized as follows: 1. as to amount of investment 2. as to status of the project 3. as to industry classification 4. as to nature of management 5. as to liability of investors  PARTIES REQUIRING FEASIBILITY STUDY Different parties require different feasibility studies depending on the specific purpose of the party concerned. 1. prospective investors 2. management 3. proponents 4. financial institutions 5. shareholders 6. the government.  PROSPECTIVE INVESTORS Prospective investors are primarily interested in knowing the viability of a proposed project taken as a whole. In addition, they are very much interested in conducting a feasibility study because they want to 1. determine if the profitability of the business can be sustained during its entire life; 2. determine the amount of funds to be committed; and 3. determine the rate of return on invested capital.  MANAGEMENT The management of an existing project is interested in conducting a feasibility study because they may want 1. to determine the viability of a proposed expansion such as the opening of a new manufacturing plant, a new branch or a new product line; 2. to determine the appropriate selling price of an existing business which the organization is planning to dispose of; 3. to determine the appropriate price of a particular business which the company plans to buy; and 4. to determine the gap between expected demand and estimated supply for a new product line that the business plans to introduce.  PROPONENTS Proponents of a new project are interested in conducting a feasibility study because they want to 1. test the viability of a new project through the application of appropriate projection tools; 2. answer the queries of other interested parties; 3. identify possible ways to improve project specifications particularly through a market study; and 4. use the study as an instrument in attracting prospective investors.  FINANCIAL INSTITUTIONS Lending institutions or creditor banks take interest in feasibility studies to 1. determine the capacity of proposed projects to settle their financial obligations before they extend the necessary credit; and 2. define the terms and conditions for credit extended. particularly the interest rates, repayment period or collaterals used to secure the amount borrowed.  SHAREHOLDERS Shareholders of an existing business are interested in feasibility studies because they 1. need to have a basis for making decisions on the sale of an existing business or the purchase of a new one; 2. need to decide whether to commit or not additional fresh capital on a proposed new project; and 3. need to determine the expected return on their investments on a new project. As to Industry Classification. A feasibility study can be classified according to industry, whether it is for 1. manufacturing, 2. real estate, 3. electronics, 4. transportation, 5. entertainment, 6. agriculture, 7. merchandising, or 8. utilities. THANK YOU