WHAT IS A FEASIBILITY

STUDY?

What Is Feasibility Analysis?

Feasibility analysis is the process of

determining whether a business idea
is viable.

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Benefits of Feasibility Analysis?

A feasibility analysis helps you

To assess the merit of your business

idea,
Determine whether there is a market for
your idea,
Whether the idea is financially viable,
and ultimately, whether or not it is
worth investing your time and money
into the venture,
Overall demand for new products,
services, or ideas

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Reasons to Do a Feasibility
Study
Conducting

a feasibility study is a good

business practice. If you examine successful
businesses, you will find that they did not go
into a new business venture without first
thoroughly examining all of the issues and
assessing the probability of business success.
Below are other reasons to conduct a
feasibility study:
Gives focus to the project and outline alternatives.
Narrows business alternatives

Reasons to Do..
Identifies

new opportunities through the

investigative process.
Identifies reasons not to proceed.
Enhances the probability of success by
addressing and mitigating factors early
on that could affect the project.
Provides quality information for decision
making.
Provides documentation that the business
venture was thoroughly investigated.

When To Conduct a Feasibility Analysis

Timing of Feasibility Analysis

The proper time to conduct a feasibility analysis is
early in thinking through the prospects for a new
business.
The thought is to screen ideas before a lot of
resources are spent on them

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Conti.
It is estimated that only one in fifty
business ideas are actually commercially
viable. Therefore a business feasibility
study is an effective way to safeguard
against wastage of further investment
The research and information uncovered in
the feasibility study will support the
business planning stage and reduce the
research time. Hence the cost of the
business plan will also be reduced
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Components of a Feasibility Analysis

Product/Service Feasibility

Industry/Target Market
Feasibility

Organizational Feasibility

Financial Feasibility

Technical Feasibility
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feasibility study is only one step in

the business idea assessment ,and

business development process

Feasibility Analysis
Role of feasibility analysis in developing
business ideas.

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Outline for a Comprehensive Feasibility Analysis

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Product/Service Feasibility Analysis

Components of product/service
feasibility analysis
Product/Service
Desirability

Product/Service
Demand

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1.1- Product/Service Desirability

First, ask the following questions to determine
the basic appeal of the product or service.
Does it make sense? Is it something consumers will
get excited about?
Does it take advantage of an environmental trend,
solve a
problem, or take advantage of a gap in the
marketplace?
Is this a good time to introduce the product or
service to the
market?
Are there any fatal flaws in the product or services

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Second, Develop/Administer a Concept

Test
A concept statement should be developed.
A concept statement is a one page description of a

business, that is distributed to people who are

asked to provide feedback on the potential of the
business idea.
The feedback will hopefully provide the
entrepreneur
A sense of the viability or the product or service idea.
Suggestions for how the idea can be strengthened or twisted before
proceeding further.

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1.2- Product/Service Demand

Product/Service Demand
Through primary and secondary research
Step 1: Administer a Buying Intentions Survey,
focus group etc
Step 2: Conduct library, Internet research, used
local data etc

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Gumshoe
Research
Explanation

A gumshoe is a detective or an
investigator that scrounges around for
information or clues wherever they can
be found.
Be a gumshoe. Ask people what they
think about your product or service idea.
If your idea is to sell educational toys,
spend a week volunteering at a day care
center and watch how children interact
with toys.
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2.0 Industry/Target Market Feasibility Analysis

Purpose

Industry/Target
Market Feasibility
Analysis
Market Feasibility:
Includes a description of
the industry, current
market, anticipated future
market potential,
competition, sales
projections, potential
buyers, etc.

Is an assessment of the
overall
appeal of the industry and
the
target market for the
proposed
business.
An industry is a group of
firms
producing a similar
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product or

Industry/Target Market Feasibility Analysis

Components of industry/target
market
feasibility analysis
Industry Attractiveness

Target Market
Attractiveness

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2.1. Assessing Industry

Attractiveness
porter five forces
model

2.2. Target Market Attractiveness

Target Market Attractiveness

The challenge in identifying an attractive target market
is to find a market thats large enough for the proposed
business but is yet small enough to avoid attracting
larger competitors.
Assessing the attractiveness of a target market is tougher
than an entire industry.

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Marketing study
includes
1.
2.
3.
4.
5.
6.
7.
8.

What
What
What
What
What
What
What
What

is
is
is
is
is
is
is
is

marketing study?
marketing Mix?
market structure?
the Product-Market Growth Matrix?
SWOT analysis?
competitive profile?
market segmentation?
customer analysis?

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Lecturer.Ahmed El Rawas

3.0. Organizational Feasibility Analysis

Purpose

Organizational
Feasibility Analysis

Is conducted to determine
whether a proposed business
has
sufficient management
expertise,
organizational competence,
and
resources to successfully
launch
a business.
Focuses on non-financial
resources.
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Organizational study
includes
1-Describe basic organizational design and
organization chart
2-Describe the human resources availability,
recruitment and training needs, and the reasons
for the
employment of foreign experts, to the extent
required for the project
3-Indicate key persons (skills required) and total
employment
(numbers and costs)
4-include professional background information about
the founders and what skills they can contribute to
the business
5-manning table

Lecturer.Ahmed El Rawas

29

Technical Feasibility
Technical

Feasibility: Details how

you will deliver a product or service
(i.e., materials, labor, transportation,
where your business will be located,
technology needed, etc.). Production
process includes input, processing and
output.

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Lecturer.Ahmed El Rawas

Technical study includes

1-Technology and operational
This involves questions such as whether the
technology needed for the system exists, how
difficult it will be to build, and whether the firm has
enough experience using that technology. The
assessment is based on an outline design of
system requirements in terms of Input, Processes,
Output, Fields, Programs, and Procedures. This can
be quantified in terms of volumes of data, trends,
frequency of updating, etc in order to estimate if
the new system will perform adequately or not.
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Lecturer.Ahmed El Rawas

Technical study
2- location analysis.
Location analysis typically involves
testing geographic locations for a real
estate development project, and
usually involves real estate land.
Market Feasibility take into account
the importance of the business in the
selected area.
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Lecturer.Ahmed El Rawas

Technical study includes

3-Resource availability
This involves questions such as how much time
is available to build the new system, when it
can be built, whether it interferes with normal
business operations, type and amount of
resources required, dependencies, etc.
4-Culture
In this stage, the project's alternatives are
evaluated for their impact on the local and
general. an enterprise's own culture can clash
with the results of the project.
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Lecturer.Ahmed El Rawas

Organizational Feasibility Analysis

Organizational Feasibility: Defines the legal and
corporate structure of the business (may also include
professional background information about the
founders and what skills they can contribute to the
business).

Components of organizational
feasibility analysis

Management Prowess

Resource Sufficiency

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3.1. Management ability

Management ability
A firm should candidly evaluate the ability, or
ability, of its management team to satisfy itself that
management has the requisite passion and expertise
to launch the venture.
Two of the most important factors in this area are:
The passion that the solo entrepreneur or the founding team has for
the business idea.
The extent to which sole entrepreneur or the founding team
understands the markets in which the firm will participate.

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3.2. Resource Sufficiency

Resource Sufficiency
An assessment of whether an entrepreneur has
sufficient non financial resources to launch the
proposed business.

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Resource Sufficiency

Examples of nonfinancial resources that may

be critical to the successful launch of a new
business

Availability of factory/ lab space for business.

Local and state government support of the business.

Quality of the labor pool available.
Closeness to key suppliers and customers.
Willingness of high quality employees to join the firm.
Proximity to similar firms for the purpose of sharing knowledge.
Possibility of obtaining intellectual property protection in key
areas.

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4.0. Financial Feasibility Analysis

Purpose

Financial Feasibility
Analysis
Financial
Feasibility: Projects
how much start-up
capital is needed,
sources of capital,
returns on
investment, etc.

Is the final component of a

comprehensive feasibility
analysis.
A preliminary financial
assessment
is sufficient.

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Financial Feasibility Analysis

Components of financial
feasibility analysis
Total Start-Up Cash
Needed

Financial Performance of
Similar Businesses

Overall Financial
Attractiveness of the
Proposed Venture

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4.1. Total Start-Up Cash Needed

Total Start-Up Cash Needed

The first issues refers to the the total cash needed to
prepare the business to make its first sale.
An actual budget should be prepared that lists all
the anticipated capital purchases and operating
expenses needed to generate the first $1 in
revenues.
The point of this exercise is to determine if the
proposed venture is realistic given the total start-up
cash needed.
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4.2. Financial Performance of Similar Businesses

Financial Performance of Similar Businesses

Estimate the proposed start-ups financial performance by
comparing it to similar, already established businesses.
There are several ways to doing this, all of which involve
a little ethical detective work.
First, there are many reports available, some for free and some that require a
fee, offering detailed industry trend analysis and reports on thousands of
individual firms.
Second, simple observational research may be needed. For example, the
owners of New Venture Fitness Drinks could estimate their sales by tracking
the number of people who patronize similar restaurants and estimating the
average amount each customer spends.

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4.3. Overall Financial Attractiveness of the

Proposed Venture

Overall Financial Attractiveness of the Proposed

Investment
A number of other financial factors are associated with
promising business startups.
In the feasibility analysis stage, the extent to which a
business opportunity is positive relative to each factor
is based on an estimate rather than actual performance.
The table on the next slide lists the factors that pertain
to the overall attractiveness of the financial feasibility
of the business idea.
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Overall Financial Attractiveness of the

Proposed Venture
Financial Factors Associated With Promising
Business Opportunities
Steady and rapid growth in sales during the first 5 to 7

years in a clearly
defined market niche.
High percentage of recurring revenuemeaning that once a
firm wins a
client, the client will provide recurring sources of revenue.
Ability to forecast income and expenses with a reasonable
degree of
certainty.
Internally generated funds to finance and sustain growth.
Availability of an exit opportunity for investors to convert
equity to cash.
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Financial study includes

1-Financial statements includes
balance sheet, income statement and
cash flow statement.
2-Financial ratios. Includes liquidity,
profitability, efficiency and
capitalization ratios
3-Source of finance ( loans or equity )
4-Appraisal methods. ( Pay back
period, IRR, NPV)
Lecturer.Ahmed El Rawas

44

Factors Considered
The

information used to form the base for the above

assumptions should include the:
location and visibility of the proposed facilities in respect of the key
sources of demand,
existing and known future competitors, including possible
substitutes,
current and forecast levels of demand and market trends taking
into account known levels of current demand, latent demand,
frustrated demand. This data may include information in the public
domain, competitor research, market surveys and demographic
analysis.
impact of non-direct but influencing changes in the competitive
environment.
Seasonality factors should also be taken into account showing when

demand is likely to be highest and lowest viability can be greatly

different if a business opens at the end or start of a trading season.

Types of businesses

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 Sole

Proprietorship

The vast majority of small businesses start out as

sole proprietorships. These firms are owned by
one person, usually the individual who has dayto-day responsibility for running the business.
Sole proprietorships own all the assets of the
business and the profits generated by it. They
also assume complete responsibility for any of its
liabilities or debts. In the eyes of the law and the
public, you are one in the same with the
business.

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Advantages of a Sole Proprietorship

1. Easiest and least expensive form of ownership
to organize.
2. Sole proprietors are in complete control, and
within the parameters of the law, may make
decisions as they see fit.
3. Profits from the business flow-through directly
to the owners personal tax return.
4. The business is easy to dissolve, if desired.
Disadvantages of a Sole Proprietorship
5. Unlimited liability. Owners who organize their
business as a sole proprietorship are personally
responsible for the obligations of the business,
including actions of any employee representing
the business.
6. Limited life. In most cases, if a business owner
dies, the business dies as well.
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Partnership

A Partnership consists of two or

more individuals in business
together. Partnerships may be as
small as mom and pop type
operations, or as large as some of
the big legal or accounting firms
that may have dozens of partners

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Advantages
1. Synergy. There is clear potential for the
enhancement of value resulting from two or more
individuals combining strengths.
2. Partnerships are relatively easy to form, however,
considerable thought should be put into developing
a partnership agreement at the point of formation.
3. Partnerships may be subject to fewer regulations
than corporations.
4. There is stronger potential of access to greater
amounts of capital.
5. No corporate income taxes.
Disadvantages
6. Unlimited liability. General partners are individually
responsible for the obligations of the business,
creating personal risk.
7. Limited life. A partnership may end upon the
withdrawal or death of a partner.
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Corporation
Corporations are probably the dominant
form of business organization in the United
States. Although fewer in number,
corporations account for the lion's share of
aggregate business receipts in the U.S.
economy. A corporation is a legal entity
doing business, and is distinct from the
individuals within the entity. Public
corporations are owned by shareholders
who elect a board of directors to oversee
primary responsibilities.
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Advantages
Unlimited commercial life. The corporation
is an entity of its own and does not dissolve
when ownership changes.
Greater flexibility in raising capital through
the sale of stock.
Ease of transferring ownership by selling
stock.
Limited liability. This limited liability is
probably the biggest advantage to
organizing as a corporation. Individual
owners in corporations have limits on their
personal liability. Even if a corporation is
sued for billions of dollars, individual
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Disadvantages
1. Regulatory restrictions. Corporations are typically
more closely monitored by governmental agencies,
including federal, state, and local. Complying with
regulations can be costly.
2. Higher organizational and operational costs.
Corporations have to file articles of incorporation
with the appropriate state authorities. These legal
and clerical expenses, along with other recurring
operational expenses, can contribute to budgetary
challenges.
3. Double taxation. The possibility of double taxation
arises when companies declare and pay taxes on
the net income of the corporation, which they pay
through their corporate income tax returns. If the
corporation also pays out dividends to individual
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shareholders, those shareholders must declare that

FEASIBILITY STUDY
is

an analysis of the viability of an

idea.

focuses

on helping answer the

essential question
should we proceed with the proposed

project idea?

All activities of the study are

directed toward helping answer

A feasibility study
looks

at the viability of an idea with

an emphasis on identifying potential
problems and attempts to answer
one main question:
Will the idea work and should you

proceed with it?

A feasibility study
Is

a preliminary study undertaken before the real

work of a project starts to ascertain the likelihood of
the project's success.

Is

an analysis of all possible solutions to a problem

and a recommendation on the best solution to use.

involves evaluating how the solution will fit into the

corporation.

can decide whether an order processing be carried

out by a new system more efficiently than the
previous one.

A feasibility study
could

be used to test a new working

system, which could be used
because:
Although few businesses would not

benefit from a computerized system at

all, the process of carrying out this
feasibility study makes the
purchaser/client think carefully about
how it is going to be used.

 Before

you begin writing your

feasibility study
identify how, where, and to whom you

intend to sell a service or product

assess your competition
figure out how much money you need to
start your business and keep it running
until it is established.

 Feasibility

studies address things like

where and how the business will
operate.
They provide in-depth details about
the business to determine if and how
it can succeed, and
serve as a valuable tool for
developing a winning business plan.

 Feasibility

studies can be used in

many ways but primarily focus on
proposed business ventures.

 Anybody

with a business idea should

conduct a feasibility study..
to determine the viability of their

idea before proceeding with the

development of a business.

Determining early that a

business idea will not work saves
Time
Money

A feasible business venture is

one where the business will
generate

adequate cash-flow
and profits
withstand the risks it will
encounter
remain viable in the long-term
and
meet the goals of the founders.

End Products
Estimates

of the project outputs will

enable the study to identify the
optimum facility mix and also
determine the costs of the operation:
costs of sales
staffing costs
marketing expenditure
Maintenance
Insurance
etc.

Feasibility Study vs. Business

Plan
The

business plan provides a planning

function.
The business plan outlines the actions
needed to take the proposal from idea to
reality.
The feasibility study outlines and analyzes
several alternatives or methods of achieving
business success.
The feasibility study helps to narrow the
scope of the project to identify the best
business scenario(s).

Feasibility Study vs. Business

Plan
The

business plan deals with only one

alternative or scenario.
The feasibility study helps to narrow the scope
of the project to identify and define two or three
scenarios or alternatives.
The person or business conducting the
feasibility study may work with the group to
identify the best alternative for their situation.
This becomes the basis for the business plan.
The feasibility study is conducted before the
business plan.

Feasibility Study vs. Business

Plan
A business plan is prepared only after the
business venture has been deemed to be feasible.
If a proposed business venture is considered to be
feasible, a business plan is usually constructed
next that provides a roadmap of how the
business will be created and developed.
The business plan provides the blueprint for
project implementation.
If the venture is deemed not to be feasible, efforts
may be made to correct its deficiencies, other
alternatives may be explored, or the idea is
dropped.