FEASIBILITY STUDY

- is defined as a systematic inquiry into a proposed business activity to determine its viability in all areas directed
towards the measurement of profitability level.

KEY TERMS TO REMEMBER:

1. Systematic inquiry
- There is a procedure or a step-by-step process involved in the conduct of a feasibility study
- An individual conducting a study has to follow definite procedures in investigating the business opportunity
that needs to be addressed.
2. Proposed business activity
- Business activities include any activity engaged in the primary purpose of making a profit
- Includes all the economic activities carried out by company during the course of business
3. Viability in all areas
- Viability of the activity is the primary concern of prospective investors
- Viability in all areas ensures a higher chance of attracting and convincing investors
4. Measurement of profitability level
- It is very important to measure the level of profitability of a certain project undertaking against other
possible projects

PURPOSE OF A FEASIBILITY STUDY

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 may be experienced during actual
implementation, and
7. To meet and satisfy the requirements set by the investors of the proposed business project

FACTORS AFFECTING PREPARATION OF FEASIBILITY STUDY

1. Type of industry
2. Size of the project, purpose of the study, party preparing study
- Size of the project - It has a direct relationship to the different factors affecting the preparation of the
feasibility study. It is expressed in terms of investment requirements
- PARTIES PREPARING THE STUDY
1. An economist, study the trends on supply and demand of goods, including prices.
2. An industrial engineer, study the production processes, waste management, and efficient use of resources,
particular energy
3. A mechanical engineer, will design the manufacturing plant, machinery and other mechanical equipment
4. Marketing consultant, will design marketing strategies, create a marketing plan
5. An accountant, will prepare the necessary projected financial statement and schedules
6. A lawyer, will prepare the legal documents required by different agencies
7. A human resource officer, will provide the necessary inputs on staffing, job descriptions and qualification
standards of personnel
3. Requirements of prospective investors

INDUSTRY

- refers to a group of companies that have common characteristics and are related in terms of operational processes,
products sold, market, functions or service offered.

INDUSTRIES ARE CLASSIFIED AS:

 EXTRACTIVE OR PRIMARY INDUSTRY

- extract natural resources and sell the products without further processing
- included in this type are mining, logging, and farming operations

 MANUFACTURING INDUSTRY
1. Process the raw materials from the primary industry and sell the finished goods to industrial or individual
consumers.

 SERVICE INDUSTRY
2. Composed of companies rendering services to the market

INDUSTRIES CAN ALSO BE CLASSIFIED ACCORDING TO THE PRODUCTS THEY SELL:

 automotive industry
 fish industry
 meat packing industry
 software industry
 utility or chemical industry
Proposed businesses either under the extractive or manufacturing industries require lengthier preparation. More
time is involved in revising the presentation of results and substantial amount is required to complete the study, as
compared to businesses under the service industry.

CLASSIFICATION OF FEASIBILITY STUDIES

1. As to amount of investment
2. As to status of project
3. In terms of status, a feasibility study can either be for a new project or for the expansion of an existing business
enterprise
3. As to industry classification
A FS can be classified according to industry:
1. Manufacturing
2. Real Estate
3. Electronics
4. Transportation
5. Entertainment
6. Agriculture
7. Merchandising
8. Utilities
4. As to nature of investment
5. As to liability of investors

PARTIES REQUIRING FEASIBILITY STUDY

1. PROSPECTIVE INVESTORS
- To determine if the profitability of the business can be sustained during its entire life
- Determine the amount of funds to be committed
- Determine the rate of return on invested capital
2. MANAGEMENT
3. PROPONENTS
- Test the viability of a new project through the application of appropriate projection tools
- Answer the queries of other interested parties
- Identify possible ways to improve project specifications, particularly through a market study
- Use the study as an instrument in attracting prospective investors
4. Financial Investors
5. Shareholders
6. Government

PROJECT SUMMARY - appears after the title page and the table of contents, is written only after all the aspects of the
study have been completed

- It is the façade of the whole study and it should win the heart of investors
A project summary should have the following sections:

1. Proposed name of the business

- The business name should
 Be reflective of the business identity
 Reflect the philosophical values and culture
 Profess the brand identity of its product
 Be appealing to the customers
- In suggesting trade names, the proponent should observe some mandatory requirements set by
government agencies like DTI, SEC, and BSP.
2. Description of the industry
3. Description of the project
- Describes the nature of the project and the product or service it will produce or serve
4. Location of the project
- The project should be located in a strategic location
- The term strategic means that the location of its business, head office, plant site and outlets should provide
a competitive advantage and ensure the attainment of maximum efficiency
- Competitive advantage means that the business has gain an edge over its competitors that can hardly be
copied and which provides higher profitability level
- The location could provide maximum efficiency if the business would be able to produce the same amount
of products at a lower cost.
5. Highlights of major assumptions
6. Summary of findings and conclusion