Chapter 1:

Introduction to Feasibility Studies

What is a feasibility Study ?
An analysis and evaluation of a
proposed project to determine if it (1)
is technically feasible, (2) is feasible
within the estimated cost, and (3) will
be profitable.
What is a Feasibility Study

Is this a good business idea?

Helps answer the question of whether to

go forward with the business idea.
What is a Feasibility Study
A feasibility study is valuable for:

Starting a new business

Expansion of an existing business

Purchasing an existing business

A Feasibility Business
A feasible business will:

Generate cash flow and profits,

Withstand risks,

Remain viable in the long-term

Meet the goals of the founders

 Reasons to Do a feasibility Study
 Gives focus to the project.

 Narrows the business alternatives.

 Identifies new opportunities.

 Provides valuable information for “go/no go” decision.

 Increases probability of business success by identifying

weaknesses early.

 Helps receive funding from lenders, grant providers, etc.

 Feasibility Study Phases
Phase 1: A brainstorming for selecting the project
Phase 2: Pre-feasibility Study
Phase 3: Detailed feasibility Study
Phase 4: Implementation phase
Phase 5: Follow up and Evaluation phase
The detailed Feasibility Study includes

1. Market analysis and marketing concept

2. Raw materials and supplies

3. Location, site and environment

4. Engineering and technology

5. Organization and overhead costs

6. Human resources

7. Implementation planning and budgeting

8. Financial analysis and investment appraisal

Major Questions before Preparing Feasibility Study

When to do a Study?

Who will do the Analysis?

How will Monitor the Study Progress?

How to Accept or Reject the Study?

How to Use the Results?

 What Feasibility Study do
The feasibility study process involves making rational
decisions about a number of enduring characteristics of a
project, which may include:

 Establishing project scope - stating exactly what the

project is.

 Vision/mission statement

 Situation analysis, history and background of the

product/service, industry and the organization
What Feasibility Study do

 The aims, goals and objectives of pursuing the

opportunity

 Market opportunities

 Current market segments

 Projected growth in each market segment

 Customer profile and demographics

What Feasibility Study do

 Performance objectives expected

 Estimation of customers and potential revenues

 Critical success factors

 Determination of competitive advantage

 Barriers to entry, education, distribution channels,

costs
What Feasibility Study do
 The time frames

 The initial costs involved

 Performance objectives expected

 Financing and projected cash flows - where will the

money come from?

 Break even analysis

 The pay back period

What Feasibility Study do

 Return on investment

 A report of costs & benefits

 Development of an action plan for the project to

proceed

 A summary of findings
 Aims and Objectives Should be Clear

You should commence your Feasibility Study by

writing the aims and objectives you envistigate for
your study.

Establish the scope of the Feasibility Study - state

exactly what the project is and what it is intended
to achieve.
 Pre-feasibility study & feasibility study

The Pre-feasibility study : A detailed review of

available alternatives must take place at the stage
of the pre-feasibility study

The detailed feasibility study should provide all

data necessary for an investment decision with
more details than the pre-feasibility study.
Feasibility study : Analysis Parts

1) Executive summary about the project and project background

2) Business environment analysis & Entry Timing

3) Market analysis and marketing concept

4) Material inputs

5) Location, site and environment

6) Engineering,

7) Technology and equipment

 Feasibility study : Analysis Parts

8) Human resources

9) Implementation planning and budgeting

10) Financial analysis and investment appraisal

11) National Feasibility Study

12) Legal study

13) Conclusion and recommendation

The Outlines of a detailed feasibility study

The structure of a detailed-feasibility study should include the

following components:

1) Executive summary about the project and project background

Project history
Cost of studies and investigations already performed
Project sponsors
Definition of the basic idea of the project, objectives and strategy

2) Business environment analysis & Entry Timing:

 SWOT analysis.
 Best entry timing of the project
The Outlines of a detailed feasibility study

3) Market analysis and marketing study:

Demand and market, includes the following:
A. Structure and characteristics of the market
B. The estimated existing size and capacities of the industry (specifying
market leaders),
C. The estimated future growth (specifying major programs of
development),
D. Major problems
E. Analysis of Competitors
F. Demand forecasting
The Outlines of a detailed feasibility study

G. General quality of goods

H. Past imports and their future trends,
I. Prices
J. Role of the industry in the national economy and national policies,
K. Priorities and targets related to the industry
L. Approximate present size of demand,
M. The past growth of demand,
N. Major determinants and indicators
The Outlines of a detailed feasibility study

Marketing concept, sales forecast and marketing budget includes

the following:
A. Description of the marketing segments,
B. Selected targets and strategies
C. Anticipated competition for the project from existing and potential local
and foreign producers and supplies
D. Localization of markets and product target group
E. Sales program
F. Estimated annual sales revenues from products
G. Estimated annual costs of sales promotion and marketing
 The Outlines of a detailed feasibility study

4) Material inputs (approximate input requirements, their present

and potential supply positions, and a rough estimate of annual
costs of local and foreign material inputs):
 Raw material
 Processed industrial materials
 Factory supplies
The Outlines of a detailed feasibility study

5) Location, site and environment, includes the following

Pre-selection, including, if appropriate, an estimate of the cost
of land
Preliminary environmental impact assessment

6) Project engineering:
Determination of factory capacity
Quantitative relationship between sales, factory capacity and
material inputs
Maps and layouts
The Outlines of a detailed feasibility study

 Civil engineering works, includes the following:

A. Rough layout of civil engineering works,
B. Arrangement of buildings,
C. Short description of construction materials to be used,
D. Site preparation and development
E. Buildings and special civil works
F. Outdoor works
The Outlines of a detailed feasibility study

7) Technology and equipment, includes the following:

A. Technologies and processes that can be adopted,
B. Technology description and forecast
C. Environmental impacts of technologies
D. Rough estimate of costs of local and foreign technology
E. Rough layout of proposed equipment (major components):
E.1. Production equipment
E.2. Service equipment
E.3. Spare parts, wear and tear parts, tools
The Outlines of a detailed feasibility study
8) Human resources:
 Estimated human resource requirements
 Estimated annual human resource costs

9) Implementation scheduling:
 Proposed approximate implementation time schedule
 Estimated implementation costs

10) Financial analysis and investment:

 Total investment costs
Rough estimate of working capital requirements
Estimated fixed assets
The Outlines of a detailed feasibility study

 Project financing
 Proposed capital structure and proposed financing (local and foreign)
 Cost of finance
 Production cost (materials, personnel and overhead costs, fixed and
variable costs)
 Financial evaluation based on the above-mentioned factors:
◦ Payback period
◦ Simple rate of return
◦ Break-even point
◦ Internal rate of return
◦ Sensitivity analysis
The Outlines of a detailed feasibility study

11) National Feasibility Study

 National economic evaluation (economic cost-benefit analysis),
includes the following:
◦ Foreign exchange effects
◦ Value-added generated
◦ Absolute efficiency
◦ Employment effects
 The Outlines of a detailed feasibility study
12) Legal Study, includes (Registrations , Contracts, Agreements,
…etc)

13) Conclusions and Recommendations