Maria Aleni B.

Verallo MBM II

Research 101 Ms. Aurora Baldrias

FEASIBILITY STUDY The feasibility study is a systematic analysis of all factors that influence the probability of success of a specific undertaking. It is designed to determine whether a project is feasible, and if found feasible, to find out the degree of profitability. The feasibility study finds wide uses for a variety proposed ideas; from the introduction of a new business, the adoption of new methods, a change in organizational structure, the adoption of new technology, or to simply choose from various alternatives. The preparation of a project study involves: 1. The collection of data (through research work) which are relevant to all aspects of the undertaking ; 2. The analyses of the collected data 3. The formulation of recommendation based on the analyses. Characteristics of a Feasibility Study: Inasmuch as the feasibility study will serve as a basis for making a decision about the viability/profitability of a given business undertaking, then the information contained in it must have the following characteristics: A. Accuracy Accurate information means that the data are not an estimate of the writer but should be the actual information in the industry/ market. Inaccurate information leads to inaccurate conclusions. B. Reliability Reliable information means that the source of the data must not come from hearsay or persons not related to the industry or market that you are studying, but must come from dependable sources and sources in the industry or market. C. Timeliness Timely information means that your data are current and are one that most closely reflects the present situation. Real world situations will set limitations to the characteristics of the information collected. However, attempts must be made in order that accurate assumptions maybe built upon them.

Components of a Feasibility Study

There are four basic components that are common to all feasibility studies, which are: the market, the production/ technical, the organizational/ management, financial and socioeconomic aspect. 1 Marketing Aspect: The market study analyzes the present demand and supply situation and finds out if they are willing and are capable to pay for the products. 1.1 Market Description:

of

This provides a brief description of the market to describe the buyers and users the product/service and the areas of dispersion.

1.2 The Demand: The study of the demand program aims to know the consumers needs and to find out if they are willing and capable to pay for the products.

1.3 The Supply Situation This part contains data about the product or services being provided by their businesses engaged in the same industry for the past five years or so; projected supply situation and factors affecting trends in the past and future supply.

1.4 Competition: This is analyzed in terms of the number of similar business that you want to engaged into; the prevailing prices; quality of the product; methods of transportation and existing rate; channels of distribution; and a description of the existing marketing practices of competitors.

1.5 Marketing Program In preparing the marketing program, one has to consider the packaging of the product, the selling price, the distribution network, and promotions.

1.6 Factors Affecting the Market of the Product: The market may be affected by the following: 1.6.1 1.6.2 1.6.3 income changes, population growth, tastes, urban/rural developments, prices of substitute products, and maketing tools. Production cost, price controls and inflation Improved technology, the development of substitute products and government policies.

Management Aspect: This portion discusses the structure of the organization of the business and the justification for such structure. It discusses the duties and functions of the different positions in the structure. It describes how the different manpower resources and activities will operate in an efficient and effective manner and the costs involved (salaries, fringe benefits etc.)

Technical Aspect:

This portion discusses in detail the product (quality, chemical composition, materials used, etc.), the processes and technology for its production, the raw materials used, etc.) 3.1 Product Description - the product specification, material/ chemical properties and quality.

3.2 Production Process - the process and technology used indicating material, equipment, and energy requirements at each step.

3.3 Plant size and production schedule: rated annually/ monthly / weekly or daily capacity, operating days per year, expected production volume for the next five years considering start up and technical factors:

3.4 Machine and equipment: lists of machinery/ equipment to be purchased with their corresponding prices, machinery and equipment lay out (floor plan)

3.5 Plant/ Business location: desirability of location in relation to the sources of raw materials, markets, labor and other factors.

3.6 Building and Facilities: type(s) of building and cost of construction, floor area, land improvement such as road, drainage, etc., and their respective cost.

3.7 Plant lay-out: description of the plant/ business lay-out drawn to scale.

3.8 Raw Materials: current and prospective costs, availability, continuity of supply, current and prospective sources.

3.9 Utilities: electricity, fuel, and water supplies indicating uses, quantity required availability, sources and costs.

3.10 Waste Disposal: description of the waste disposal method and the costs involved.

3.11 Production Cost: detailed breakdown of the production costs including direct and indirect materials, direct and indirect labor, and manufacturing overhead. 4 Financial Aspect: The financial aspect determines the amount of money required in the realization of the project: the sources of financing and the costs involved. This portion basically addresses money matters for the project; how much money the project needs, how such financial requirements will be raised, how soon the money invested can be earned and recouped. 4.1 Statement of Assumptions: Assumptions are financial projections based on actual data which may be obtained from the marketing, technical and other studies, from the plans of the project proponent or from the economic and government data. These data provide the foundation for estimating the future expenses and revenues of the project.

Assumptions may include the projections about the following: a. b. c. d. e. f. Plant location and plant capacity Sales volume, sales price, price level increases and main market Marketing plan Foreign exchange rate Taxes Projects time table

4.2 Total Project Cost: Total amount of funding needing to put up a project. 4.3 Initial Working Capital Requirements This pertains to the capitalization needed to start the project. This could be itemized such as the following categories: land, site preparation; structural such as buildings and other civil works and auxiliary and other service facilities; pre-operating production costs such as salaries and wages, raw materials and overheads and contingencies. 4.4 Sources of Financing the Project: This pertains to the sources of capital which may either be equity capital or creditors capital. 4.5 Projected financial statements This portion pertains to the financial statements during the projects pre-operating period. Income statement, balance sheet and projected cash flow statements are presented here.

4.6 Projected Financial Performance : Financial Analysis The projected financial statements are analyzed as how the enterprise will perform and to measure its performance using tools in financial analysis like financial ratios, payback period, etc. Financial analysis is important because it will determine the profitability or viability of the business venture based on the projected financial statements presented. 5. Socio-Economic Aspect This study determines the socio-economic contributions the project can offer. It explains the effects of the project on employment and income, taxes, supply of commodities, and demand for materials. 5.1. Employment and Income The project can help the unskilled workers learn skills and the skilled, to upgrade old skills or acquire new ones; hence, it creates employment opportunities and expands the local pool of skilled manpower. 5.2. Taxes The project contributes to the development of the community in the form of taxes paid to the government. Income tax, import tax, sales tax, municipal tax, and other taxes are contributed to the government before the start of the operations and onto the full swing of the project. 5.3. source Supply of Commodities A new market for a domestic supplier of raw materials may be created. A new of supply for existing or potential industrial consumers may be developed. Such development may bring about new investments. The project may also earn foreign exchange utilized for the purchase of imports, if it will produce substitutes or equivalents.

5.4.

Demand for Materials The project may alleviate or minimize the consequences of importation decrease of stoppage by ensuring the local supply of goods it will produce. By creating competition, the project may decrease the prices of local products.

Format:

Feasibility study format varies and will depend upon the reader. If the business owner himself prepared the feasibility study, and the business will be financed by the owner himself, then much of the details may not necessarily be included. If on the other hand, you have just hired the services of experts (or consultants) to prepare your feasibility study, they will prepare it in a proposal format ready for submission to a funding or lending institution. A typical format is as follows: I. Executive summary II. Introduction - a brief description of the business, the product or service that you produce or deliver, and the rationally why the feasibility study is being undertaken. III. The Market feasibility IV. The Production/Technical Feasibility V. The Organizational Feasibility VI. Financial Feasibility VII. The Socio-Economic Impact VIII.The Conclusion of the feasibility study on whether the proposed undertaking is viable/profitable or not. The conclusion will provide an outline of how the business will succeed. The discussion will be based upon the strength and the weakness of the four components of the feasibility study. Areas for improving the strength will be pointed out; strategies to overcome areas of weaknesses will also have to be pointed out.