INTRODUCTION TO

PROJECT FEASIBILITY
STUDY
Prepared by:
Ronald Aaron U. Po
 DISCUSSION OUTLINE

1.0 The Project Development Cycle

2.0 Nature of Project Feasibility Analysis

3.0 Why Conduct Feasibility Study

4.0 Levels of Feasibility Analysis

 MODULE OUTLINE

5.0 Stages of Project Feasibility Analysis

5.1 Overview of Project Feasibility Process
5.2 Marketing Analysis of Flow Process
5.3 Technical Analysis of Flow Process
5.4 Financial Analysis of Flow Process
5.5 Operational and Implementation Aspects
5.6 Social Profitability Process
5.7 Financing Analysis Process
 MODULE OUTLINE

6.0 Project Identification

6.1 Product Criteria Selection
6.2 Product Rating
 PROJECT DEVELOPMENT
CYCLE

 Transition of the project from

inception to maturity
 PHASES OF PROJECT
DEVELOPMENT
I. Pre-investment Phase
 Project Identification
 Project Preparation
 Project Appraisal and Financing
 PHASES OF PROJECT
DEVELOPMENT
II. Investment Phase
 Detailed Engineering/ Design
 Project Implementation

III. Post Investment Phase

 Project Operation
 Ex-post Evaluation
 WHY CONDUCT
FEASIBILITY STUDY
 To minimize the risk of project
failures.
 To have an accurate estimate of
resources to be consumed by the
project.
 To justify an investment.
 WHY CONDUCT
FEASIBILITY STUDY
 To have a working plan for project
implementation.
 To have a basis for future action like
detailed planning.
 To have a common language among
the interest groups in the project.
 LEVELS OF FEASIBILITY
ANALYSIS
1.0 Pre-feasibility Study

2.0 Feasibility Study

 WHY CONDUCT A PRE-
FEASIBILITY ANALYSIS
 To narrow down the range of
possible alternative solutions.
 To determine whether there is a
need for a detailed feasibility study.
 To establish a work program for
further development of a project.
 COURSE OF ACTIONS
EXPECTED
 Reject the project.
 Defer the conduct of the detailed
feasibility study.
 Proceed directly to detailed design
and implementation.
 Conduct a detailed feasibility study.
WHY CONDUCT A DETAILED
FEASIBILITY STUDY
 More detailed information is required to
produce more conclusive results.
 Alternative schemes of the project are
nearly of the same degree of feasibility
and/ or show marginal flexibility.
 New alternative solutions have emerged
whose feasibility need to be ascertained
through more detailed analysis.
IS THERE A NEED FOR A DETAILED
FEASIBILITY STUDY?
YES, if
 More detailed information is required to
produce more conclusive results
 Alternative schemes of the project are
nearly of the same degree of feasibility
and/ or show marginal feasibility
 New alternative solutions have emerged
whose feasibility need to be ascertained
through more detailed analysis
 NATURE OF PROJECT
FEASIBILITY ANALYSIS
 Conducted in a given institutional
frame
 Size, degree of complexity and risk of
the project affect the raneg of and
accuracy of information necessary fro
making decisions
 Different for each project; must be
tailor-fitted for each situation
 NATURE OF PROJECT
FEASIBILITY ANALYSIS
 Must provide a base – technical, economic
and commercial for an investment decision
 Most feasibility studies have the same or
similar coverage but usually differ in
orientation and emphasis
 Is not an end in itself but only a means to
arrive at an investment decision
 Data should be as accurate as possible;
oftentimes rely on assumptions
 STAGES OF PROJECT
FEASIBILITY ANALYSIS
1.0 Identification Stage
 Objectives to be attained
 Product/ Opportunity

2.0 Pre-selection Stage

 The need for a pre-feasibility study
 Scope and estimate of subsequent studies
 Results in a pre-feasibility study report
 STAGES OF PROJECT
FEASIBILITY ANALYSIS
3.0 Analysis Stage
 Marketing
 Technical
 Financial

4.0 Evaluation and Decision Stage

5.0 Social Profitability Analysis

 STAGES OF PROJECT
FEASIBILITY ANALYSIS
6.0 Investment Proposal
 General Information
 Project Description
 Miscellaneous Information

7.0 Project Implementation Stages

 Contracting
 Project Designing
 Selection of Materials
 Construction
 STAGES OF PROJECT
FEASIBILITY ANALYSIS
8.0 Project Identification
 Product Selection Criteria
 Product serves a presently unserved
market.
 Product serves an existing market in which
demand exceeds supply.
 Competitive edge over existing similar
products.
 BASIC DATA CONTENT OF A
PREFEASIBILITY STUDY
1.0 Product Description

2.0 Market Description

 Where is the product now manufactured?
 How many companies exist and how specialized are they?
 What are the national production, imports, and exports?
 Are there government incentives?
 What is the estimated consumption?
 What is the estimated product longevity or future
consumption?
 What is the price structure?
BASIC DATA CONTENT OF A
PREFEASIBILITY STUDY
3.0 Outline of Technological Variants
 Labor
 Proximity to markets and raw materials
 Transportation facilities and costs
 Water
 Others (personal reference, competition, tax
considerations, environmental controls and so
on)

4.0 Availability of Main Factors of Production

BASIC DATA CONTENT OF A
PREFEASIBILITY STUDY
5.0 Cost Estimates

6.0 Estimate of Profits

7.0 Other Data

 Local attitudes towards industry
 Educational, recreational, and civic data
 Availability of local sites
 MARKET ANALYSIS

1.0 Brief Description of the Market

 Market Area
 Methods and Rates of Transportation
 Channels of Distribution
 General Trade Practices

2.0 Analysis of Past and Present Demand

 Identification of Consumers of the Product
 Quantity and Value of Consumption
 MARKET ANALYSIS

3.0 Analysis of Past and Present Supply

 Determine Competitive Position of the Product
 Selling Price
 Quality
 Marketing Practices of Competitors

4.0 Estimate of Future Demand for the

Product
 MARKET ANALYSIS

5.0 Estimate Product’s Market Share

 Demand
 Supply
 Competitive Position
 Project’s Marketing Program
 TECHNICAL ANALYSIS

1.0 Description of the Product

 Physical properties
 Mechanical properties
 Chemical properties

2.0 Description of the Manufacturing Process

 Detailed flow charts
 Alternative processes
 Justification of process selected
 TECHNICAL ANALYSIS

3.0 Determination of Plant Size and Production

Schedule

4.0 Selection of Machinery and Equipment

 Specifications
 Equipment to be purchased and origin
 Quotations from suppliers and related information
 Comparative analysis of alternatives
 Cost
 Reliability
 Performance
 Spare Parts Availability
 TECHNICAL ANALYSIS

5.0 Identification of Plant’s Location and

Assessment of its Desirability
 distance from raw material sources
 markets
 comparative study of different sites

6.0 Design of Plant Layout

 cost of erection
 proposed types of buildings
 land improvements
 TECHNICAL ANALYSIS

7.0 Study of Availability of Raw Materials and

Utilities
 description of physical and chemical properties
 quantities needed
 current prospective costs
 terms of payment
 locations of sources of supply
 continuity of supply
 TECHNICAL ANALYSIS

8.0 Estimate of Labor Requirements

 detailed breakdown of the direct and
indirect labor
 supervision required for the
manufacture of product
 TECHNICAL ANALYSIS

9.0 Determination of the Type and Quantity of

Waste to be Disposed
 waste disposal method
 costs involved
 clearances required from proper authorities

10.0 Estimate of the Production Cost for the

Product
 FINANCIAL ANALYSIS

1.a. For Existing Companies

 audited financial statements
 balance sheets
 income statements
 cash flow statements

1.b. For New Companies

 statements of total project cost
 initial capital requirements
 cash flow relative to the project timetable
 FINANCIAL ANALYSIS

2.0 Financial Projections for Future Time Periods

 income statements
 cash flows
 balance sheets

3.0 Supporting Schedules for Financial Projections

 assumptions used as collection of sales
 inventory levels
 payment period of purchases and expenses
 elements of production costs, selling, administrative and
financial expenses
 FINANCIAL ANALYSIS

4.0 Financial Analyses

 Return of investment
 Return on equity
 Break-even volume
 Price analysis

5.0 Sensitivity Analyses

 Items with large impact on profitability
 Risk analysis
 SOCIO-PROFITABILITY
ANALYSIS
1.0 Definition of the Project
 technical description
 alternatives that should be considered
 pertinent constraints

2.0 Enumeration of Costs and Benefits

 assessment of the validity and quantifiability of
the listed costs and benefits
 SOCIO-PROFITABILITY
ANALYSIS
3.0 Collection of Data Needed to
Evaluate the Costs and Benefits

4.0 Measurement of Costs and Benefits

5.0 Presentation of Results

 INVESTMENT PROPOSAL

I. General Information
 Information on the product
 Company History
 Nature of the industry
 Type of organization/ organizational
chart
 Reputation and qualification of the
existing proposed management
 INVESTMENT PROPOSAL

II. Description of the Project

 Extracts from the economic feasibility
study
 Markets
 Production
 Selected manufacturing method
 Financial statements
 INVESTMENT PROPOSAL

III. Miscellaneous Information

 Guarantees to be offered to lending
institutions
 Steps taken and formalities completed
toward the implementation of the
project
 Technical partners envisaged or
selected
 PRODUCT SELECTION
CRITERIA
 Product Serves a Presently Unserved
Demand
 need has been unrecognized and undeveloped
 need did not exist
 no one knew how to make a product fulfill the
need

 Product Serves an Existing Market in which

Demand Exceeds Supply
 PRODUCT SELECTION
CRITERIA
 Competition Edge Over Existing
Similar Products
 improve design
 lower price
 better quality
 DECISIONS AT VARIOUS
PRE-INVESTMENT STAGES
DECISION ANALYSIS DECISION GOAL
TOOL STUDY
Identification General or  Identify opportunity
Project Opportunity  Determine critical
areas for support
Studies
studies
 Determine area for
pre-feasibility study

Preliminary  Support Studies  Determine which of

the possible choices
Analysis is the more viable
 Identify the choice
project criteria
 DECISIONS AT VARIOUS
PRE-INVESTMENT STAGES
DECISION ANALYSIS TOOL DECISION GOAL
STUDY
Preliminary  Pre-feasibility  Determine the
provisional viability
Study
Analysis of the project
 Appraisal if the
feasibility study
should be launched

Final  Support Studies  Investigate in detail

selected criteria
Analysis requiring in-depth
study
 DECISIONS AT VARIOUS
PRE-INVESTMENT STAGES
DECISION ANALYSIS DECISION GOAL
TOOL STUDY
Final  Feasibility Study  Make the final choices of
project characteristics
Analysis  Determine the feasibility
of the project selected
criteria

Project  Evaluation Study  Make final investment

decision
Evaluation