Chapter 3

Feasibility Study in Hospitality

Industry

Feasibility study is an important step

in the planning process for any project
or business venture. It is a
comprehensive analysis of the
potential success of a proposed project
or business, based on a variety of
factors including market demand,
financial viability and operational
feasibility.
 In hospitality industry feasibility study
can help us to determine whether a
proposed restaurant, hotel or other
hospitality related project is likely to be
successful. It can provide valuable
insights into the market demand for the
proposed project.

A well-conducted feasibility study can

help us identify potential risks and
challenges that may arise during the
project implementation and provide
recommendations for mitigating these
risks. It can also help the investors and
stakeholders make informed decisions
about whether to proceed with the project,
and if so how to do so in the most
effective and efficient way possible
Specific benefits of conducting a feasibility study in
the hospitality industry include the following:
1. Identifying Market Demand
Feasibility study can help to determine
whether there is sufficient demand for the
proposed hospitality project in the target
market. It includes analyzing the
demographics of potential customers,
assessing the competition, and evaluating
consumer trends.

2. Assessing the Competition

Feasibility study can help identify
existing and potential competitors, their
strengths and weaknesses and how the
proposed project can differentiate itself
in the market
3. Evaluating Location
Location is a critical factors in the
success of a hospitality project, and
feasibility can help evaluate the
suitability of potential locations based
on factors such as accessibility,
visibility and local regulations.

4. Financial Projections
feasibility can help assess the
financial viability of the project by
analyzing costs, revenue projections
and potential return on investment.
 5. Regulatory Requirements
Feasibility can help to identify any
legal or regulatory requirements that
may impact the project such as zoning
laws, building codes and licensing
requirements

Parts of the Feasibility Study

1. Executive Summary – This a brief overview
of the entire feasibility study, summarizing
the key findings and conclusion.
2. Introduction – Provides background
information on the proposed project,
including its objectives, scope and purpose.
3. Market Analysis – Analyzes the target
market and potential demand for the
project, including an assessment of the
competition and consumer trends.
4. Technical Analysis – Examines the
technical aspects of the project,
including the design, construction and
operation

5. Financial Analysis – Analyzes the

financial viability of the project, including
the projected costs, revenue and profitability.
6. Risk Analysis – Identifies potential risks
and challenges associated with the
project and outlines strategies for
mitigating.
7. Conclusion – Summarizes the key
findings of the feasibility study and offers
recommendations for whether or not to
proceed with the project.
8. Appendices – It includes an additional
data or information that support the findings
of the feasibility study, such as market
research data, financial projections or
technical specifications

How to do a FEASIBILITY STUDY?

 Entrepreneurs with innovative ideas for
business ventures should not start with
conclusions that the business will be profitable.
The business venture must be evaluated
before the ultimate step of actual investment is
taken.

Here are some suggested ways on how to

do an investigation of the project:
1. Start with the objective to be attained.
2. Define the scope.
3. Conduct a market study .
4. Do a technical analysis that should describe the
product or service, what it is, and how it is made.
5. Prepare the financial statements so that the project
can be evaluated in terms of its commercial
profitability and financing required to put up the
establishment.
6. Evaluate then conclude.
Market Study
It refers to the process of gathering and
analyzing information related to a particular
market or industry. It involves evaluating
various factors such as demand, competition,
consumer behavior, and trends to determine
the viability of a business or product in the
market.

Site Selection
It is the process of identifying and
evaluating potential location for a business
or project. It involves analyzing factors such
as accessibility, demographics,
infrastructure, zoning regulations and
competition to identify and determine the
best possible location for the business.
 Site Selection Guidelines

1. Accessibility
Defined as
the ability to
reach a place or
destination with
ease.

2. Demographics
the location should have a target market
that matches the business target audience.
It includes factors such as population
density, income levels, age, distribution,
and education levels.
Market Segmentation

3. Competition
The location should have minimal
competition or competitive advantage over
existing competitors. Analyzing the number
and strength of competitors in the area, as
well as the new potential for new competitors
to enter the market.
4. Site Analysis Evaluation
It is a detailed assessment of the physical
characteristics of a potential site.
Factors of Site Analysis

A. Site Description B. Site Evaluation

1. Size 1. Visibility from the main arteries
2. Boundaries 2. Accessibility to and from the main
3. Topography arteries
4. Survey 3. Access to other transportation
5. Subsoil Condition 4. Availability of water and sewage
6. Drainage Problem hookup
5. Availability rates of gas, electricity,
and telephone
6. Traffic Counts
1. The size of the site should be appropriate
for the business or project. Must include
the available space for building, parking,
and other facilities
2. Boundaries of the site should be clearly
defined and meet the requirements of
local zoning regulations. Ex. Setbacks,
easements
3. Topography of the site should be
evaluated to determine any potential
challenges or opportunities. Ex.
Analyzing the slope, soil stability, other
physical characteristics of the land
4. A survey of the site is essential to
identify any potential issue such as
encroachments or disputes. It helps to
ensure that the site meets the
requirements of local zoning regulations

5. Subsoil condition of the site should be

evaluated to determine any potential
challenges or opportunities. Ex.
Analyzing soil type, depth of bedrock, other
factors that may affect the construction
or site development.
6. Drainage of the site should be evaluated
to determine any potential problem. Ex.
Analyzing the slope of the land
Proper selection of a site should ensure
accessibility, visibility and availability
1. Accessibility
2. Visible
a. site should be easily located
b. landmark may be used for accurate
direction.
3. Availability
a. parking area, potable water,
electricity.
 Assess the availability of resources
and infrastructure in the local area,
including access to labor,
transportation, utilities, and other
necessary resources. Identify any
regulatory or legal requirements that
may impact the project including
zoning regulations, environmental
laws, and licensing requirements.

Basic Market Survey Information

1. Market Segmentation
A. Demographic
B. Psychographic
C. Geographical
D. Behavioral
2. Number of prospective customers
3. Customers wants and needs (how
much can they afford?)
A. Demographic Characteristics
1. Gender
2. Ethnic background
3. Income
4. Occupation
5. Education
6. Religion
7. Nationality
8. Generation, Social Class

B. Psychographic Characteristics
It involves dividing your market into
segments based upon different personality
traits, values, attitudes, interest and lifestyle
of consumers.
1. Interests 5. Attitudes
2. Opinions 6. Behavior
3. Values
4. Activity
 3. Customers wants and needs
A. Products (food, rooms): quality,
quantity, type of service
B. Service: Speed, Self-service, waiter
service
C. Ambience: Décor, Lighting,
Acoustics, sitting arrangements

Financial Analysis
1. Financial Analysis is the process of
evaluating businesses, projects, budgets and
other finance-related transactions to
determine their performance and suitability.
 2. Financial Analysis is composed of two types of
budget

a. Capital Investment budget

includes land, building, equipment. * It
answers the question how soon will be the
return on investment?
b. Operating Budget
includes revenues, expense and net return * it
answers the question how much the profit is?

Capital Investment Budget

A detailed statement required for land,
building, furnishings and equipment, and
working capital. Cost of the land can be
estimated by realtors, while the cost of
construction including equipment and
furnishing can be estimated by architechs
 Cost estimates for furnishings and
equipment include furniture, machine and
operating equipment, which includes items
as linen, chinaware, glassware, silverware,
utensils and uniforms. Pre-opening
expenses refer to the fund necessary to
meet financial obligations of the
establishment prior to its opening or
regular operations.

Project Cost Estimates:

Land, Construction Cost, Taxes, Architect,

Engineer, Consultant Fee, Furniture and
Fixture and Equipment, Pre-opening
Expenses, Working Capital, Overhead
Expenses and Contingency.