FEASIBILITY STUDY - Eastern Mediterranean University
CHAPTER 2FEASIBILITY STUDY1
THE PROJECT CYCLEAll projects go through a series of distinct stages, between theinitial idea for the project and the time when the project iscompleted.In general, the following stages can be identified in the projectcycle.1. An identification stage - The needs, goals and purpose of theproject are broadly identified.2. The planning and preparation stage - During this stagealternatives for the project are analyzed. A project alternative isselected and a feasibility report for this project alternative isproduced.3. The appraisal or approval stage - The approval stage is thestage where decision-makers, including financiers, determinewhether or not the project will be implemented.2
THE PROJECT CYCLE (continued)4. The implementation stage - In this stage detailed designsare completed and the project facilities are built andcommissioned. Supporting activities such as stafftraining are also under way.5.The operational stage - During the operational stage theproject facilities are integrated with the existing system toreach the specified objective or goal.6.The evaluation stage - During this final stage, theproject is evaluated and the lessons learnt are identifiedso that future projects can be improved accordingly.3
DEFINITION OF FEASIBILITY Feasible means ‘doable’, ‘achievable’, ‘realizable’,‘accomplishable’. The purpose of a feasibility study is to make anassessment about the overall potential of a businessconcept of project. A feasibility study is a researched and written report onwhether a business idea is achievable. In particular, a business feasibility study is used toassess the economic viability of your business conceptbefore you start spending serious money and time. In other words, a feasibility study is a process toexamine the potential of the business to be profitable inyour specific market.4
DEFINITION OF FEASIBILITY (cont’d) This is the study of a proposed project to indicatewhether the proposal is attractive enough to justifymore detailed preparation A feasibility study is part of the process of projectidentification, preparation and selection It involves the process of appraising projects andthen choosing to implement some of them This is an extremely important stage in projectmanagement10/22/2018Dr. Joshua Onono5
KEY FACTORS IN A FEASIBILITY STUDY Key factors looked at in a feasibility study:– Availability of adequate market– Growth potential of the project– Investment, operation and distribution costs– Demand and supply factors– Social and environmental conditions10/22/2018Dr. Joshua Onono6
OBJECTIVES OF FEASIBILITY STUDY The feasibility study answers the basic question: is it realistic to address the problem or theopportunity under consideration? And it produces a final proposal for themanagement, this final report might includes:1.2.3.4.5.6.7.8.9.Project nameProblem or opportunity definitionProject descriptionExpected benefitConsequence of rejectionResource requirementsAlternativesOther considerationsTheorization7
FEASIBILITY STUDYThe project feasibility study consists ofthree analysis:A. Market analysisB. Technical analysisC. Financial analysis8
A. Market AnalysisGenerally market analysis consists of:1. Gathering and collecting necessary information anddata2. Analyze the information and data3. Find out what is the reaction of the market to thesystem (project)4. Identify your marketIsolate your marketDescribe the marketQuantify your market (to find out the demand)5. Determine the magnitude of this market segment infuture.9
A. Market Analysis (cont’d)Briefly the purpose of market analysis is to collectinformation and data in order to identify, isolate,describe, and quantify your market on which yourparticular system (project) is going to beimplemented.These are discussed briefly in the following:10
A. Market Analysis (cont’d)1. Conducting consumer analysis:a) What are their needs, motives, etc - Determine the level of the needs:The basic level of needs are determinedfrom the following:- Physiological needs- Social needs- Psychological needs11
A. Market Analysis (cont’d)1. Conducting consumer analysis (cont’d) :b) Purchasing process:- Decide who is going to buy- How do they buy- Where do they buy- When do they buy- In what quantity12
A. Market Analysis (cont’d)2. Analyze the competitive environmenta) Competitors- Find out the competitors- Find out their number- Find out their financial capacity- Find out their technological capacity13
A. Market Analysis (cont’d)2. Analyze the competitive environment (cont’d)b) Determine whether there is monopolistic(single) or oligopoly (served by a few), orperfect competitionc) Determine barriers to entry to the marketi) Economies of scaleii) Absolute cost advantageiii) Brand franchise etc.14
A. Market Analysis (cont’d)Bases of competition:There are three basic weapons in competition:- Price- Quality :Determine what kind of characteristic attractsto the place of market- Service:Determine whether there is enoughtransport system to the place of consumers15
A. Market Analysis (cont’d)3. Develop criteria to segmentation of market:If the market is very large, it is important todetermine boundary to your market.This is done from:- Geographic factors- Demographic factors, age, sex, etc.- Product end use (public sector or private sector)- Economic factors (determine the income of theconsumers)16
A. Market Analysis (cont’d)4. Develop a marketing strategy:a) Determine the quality, kind, packaging ofproduct depending upon the preference ofthe consumers.b) Determine price of the product that is to saydetermine what kind of price strategy youshould follow in order to compete.c) Promotion: basic purpose of promotion is tomake your consumers be aware ofyour product (advertisement)d) Determine the place (distribution)17
A. Market Analysis (cont’d)5. Determine the magnitude of market segment in future (i.e.forecasting market size, future demand)Use the following techniques:- Casual model (Casual Research explores the effect of onething on another, and more specifically, theeffect of one variable on another)- Regression analysis: a statistical process for estimatingthe relationships among variables.- Time series analysis and so forthIf we don’t have any past data for instance if we areproducing brand new product which does not exist in themarket, use the following forecasting techniques:- Delphi (a kind of brainstorming without face to face meeting)- Cross impact, etc.(determine how relationships betweenevents would impact resulting events and18reduce uncertainty in the future)
A. Market Analysis (cont’d)6. Keep sales report which will indicate (reflect)your share of market in the future.19
B. Technical AnalysisThe study of technical analysis includes:1- Develop product design- Market (sales) specification- Performance specification- Design specification20
B. Technical Analysis (cont’d)2. Evaluate alternative technology and select theoptimal one based on:- Capital requirements- Energy requirements- Need for imported equipment and foreign exchange- Environmental effects- Safety and health hazards- Support of indigenous (native) industries21
B. Technical Analysis (cont’d)3- Develop productionCost140,000AverageUnit ed Cost20,000010203040506070Optimum capacity8090100Capacityutilization (%)
B. Technical Analysis (cont’d)3. Develop production (cont’d)a) When selecting alternative capacity level,take into account the following factors:- Demand- Financing needs- Technology capability on design aspect- Raw materials- Economic policy of the country23
B. Technical Analysis (cont’d)3. Develop production (cont’d)b) Determine production type:- Continuous- Intermittent or mixedc) Determine production schedule:- Demand fluctuation- Inventory (stoking)24
B. Technical Analysis (cont’d)3. Develop production (cont’d)d) Select equipment, machinery, tools, etc.e) Estimate the labor needs: direct labor, directsupervisory personnel, indirect supervisorypersonnel, service people, etc.f)Lay out physical facilitiesg) Design production of organization, estimateoffices and science space requirements.25
B. Technical Analysis (cont’d)4- Select plant location:The factors considered in selecting plant location are:a) Market place:The location of the plant should be as near aspossible to market place to save high cost oftransportation, and fragility of the product.b) Raw materials:The location of the plant should be as close aspossible to raw materials place in order to save thecost of transportation.If the location of raw materials & market place isdifferent location, how do we select?26
B. Technical Analysis (cont’d)This is done as follows:i.If the volume of the product is increased afterprocess, place your plant near the market.ii. If the volume of the product is decreased afterprocess, place your plant near the raw materials.c) Availability of transportation facilityd) Availability of manpower- Abundance of wages- Union militancy27
B. Technical Analysis (cont’d)e) Social and cultural factors:The firm has to meet the social and culturalfactors such as:- Education facility- Recreation facility, etc.f) Energy, water, sewage systems, etc.g) Geographic factors:Due to weather change, you may need to makeheating or cooling system in your warehouse, etc.h) National factorsi) Defense factors28
B. Technical Analysis (cont’d)5- Develop activity planning for implementation byusing:PERT: Project Evaluation Review TechniquesCPM: Critical Path MethodBarchart29
C. Financial AnalysisFinancial Analysis:Financial analysis consists of three main parts:a. Estimating of investment cost (first cost)b. Estimating of operating costc. Estimating of revenue30
C. Financial Analysis (cont’d)6 - Financial Analysis (cont’d)a.Investment cost (first cost) includes allexpenditures related to the implementation ofthe project from its conception to start up that iscalled fixed cost.Fixed capital cost:These include costs of residentialbuildings, offices, cafeteria, warehouse,roads, energy lines, railroads, machinery,stand by equipment, etc 31
C. Financial Analysis (cont’d)6 - Financial Analysis (cont’d)b. Operating cost includes cash to pay salaries,to cover emergency, insurance, cost ofmaterials, energy, advertising, etc c. Revenue: A projection of annual net cash flowwhich is made with consideration of:i. Sales of main and secondary productsii. Services provided, etc.32
C. Financial Analysis (cont’d)Once the cost and revenue analysis are ready, thenprepare Proforma Net Cash flow Statement as shownbelow:Year 1Year 2Year 3 Year n- Fixed cost - Working capitalInterest payment(B)Depreciation(C)Operating costs(D)Revenues(E) Initial investment(A)33
C. Financial Analysis (cont’d)After completing the Proforma Net Cash FlowStatement for each alternative, use the followingproject evaluation methodologies to select the mostoptimal project:- Net Present Value (NPV)- Internal Rate of Return (IRR)To supplement the above alternative evaluationtechniques use the following methods- Pay back period- Break even analysis34
C. Financial Analysis (cont’d) The payback period, np, for an asset or alternative isthe estimated time, usually in years, it will take for therevenues and other economic benefits to recover theinitial investment and a stated return. Break even analysis is the number of units need to beproduced in order the project to break even. Payback period and breakeven analysis are not perse an alternative evaluation techniques, yet they areuseful as a supplemental decision making tool.35
SECTIONS OF A FEASIBILITY REPORTEvery feasibility report should contain the followingsections:1. an introduction2. a body,3. a conclusion, and4. a recommendation.36
1. Introduction The introduction should state the– purpose of the report,– describe the problems , and– include any pertinent background information. You may also discuss the scope or extent of thereport in the introduction and any procedures ormethods used in the analyses of alternatives. Any limitations on the study should be noted here aswell.37
2. Body The body of the report should present a detailedevaluation of all alternatives under consideration. Evaluate each alternative according to yourestablished criteria. Ordinarily, each evaluation would comprise a separatesection of the body of the report.38
3. ConclusionThe conclusion should summarize the evaluation of allalternatives, usually in the order discussed in the bodyof the report.39
4. RecommendationThis section presents the alternative that the bestmeets the criteria.40
THANKS FORYOUR ATTENTION41
HOMEWORK - Feasibility study AssignmentXYZ Company is planning to build dormitory complex, facilitybuilding, sport facility and parking lot in a land of 30,000 m2 areanear EMU. The dormitories will be rented by EMU students. Theproject will be consisting of 540 bed rooms as follows:Boys’ dormitories120 rooms single bed rooms (Bed room, small kitchen with sittingroom and toilet and bath room).150 rooms double bed rooms (Bed rooms, small kitchen with sittingroom and toilet and bath room).Girls’ dormitories120 rooms single bed rooms (Bed room, small kitchen with sittingroom and toilet and bath room).150 rooms double bed rooms (Bed rooms, small kitchen with sittingroom and toilet and bath room).42
Shops2 RestaurantsStationeries1 Post office1 Gym center1 Barber1 HairdresserSport FacilityFacility building consist of :Tennis courtBasket ball courtValley ball court500 m2750 m2 each80 m220 m2500 m260 m260 m230 m * 60 m30 m * 60 m10 m * 25 mCost of land will be 50 /m2 , the building construction cost will be550 /m2 and the sport facilities will be 150 /m2 .Assume all missing data.Prepare a feasibility study report (carryout Market, technical andfinancial analysis) for XYZ Company. List all your assumptions. Inpreparing the feasibility report, you are advised to use the templateattached.Report will be due on 13 DECEMBER 2018.43
DEFINITION OF FEASIBILITY Feasible means 'doable', 'achievable', 'realizable', 'accomplishable'. The purpose of a feasibility study is to make an assessment about the overall potential of a business concept of project. A feasibility study is a researched and written report on whether a business idea is achievable.
Study. The purpose of the Feasibility Study Proposal is to define the scope and cost of the Feasibility Study. Note: To be eligible for a Feasibility Study Incentive, the Feasibility Study Application and Proposal must be approved by Efficiency Nova Scotia before the study is initiated. 3.0 Alternate Feasibility Studies
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Our reference: 083702890 A - Date: 2 November 2018 FEASIBILITY STUDY REFERENCE SYSTEM ERTMS 3 of 152 CONTENTS 1 INTRODUCTION 9 1.1 EU Context of Feasibility Study 9 1.2 Digitalisation of the Rail Sector 9 1.3 Objectives of Feasibility Study 11 1.4 Focus of Feasibility Study 11 1.5 Report Structure 12 2 SCOPE AND METHODOLOGY 13
Food and nutrition surveillance systems: technical guide for the development of a food and nutrition surveillance system for countries in the Eastern Mediterranean Region World Health Organization. Regional Office for the Eastern Mediterranean p. .- (WHO Regional Publications, Eastern Mediterranean Series; 33) 1.
In 2006, a 300 MW solar PV plant, generator interconnection feasibility study was conducted. The purpose of this Feasibility Study (FS) is to evaluate the feasibility of the proposed interconnection to the New Mexico (NM) transmission system. In 2007, a feasibility study of PV for the city of Easthampton, MA was conducted.
the Windward Islands, Republic of Pacifica. This document is the resulting Feasibility Study Report. This Feasibility Study Report will form the basis of a later proposal to Biodiversity International to fund the full eradication project. The purpose of the Feasibility Study is to assess the feasibility of eradicating the Pacific rat from the
CanmetENERGY helps the planners and decision makers to assess the feasibility of renewable energy projects at the pre-feasibility and feasibility stages. This study is an application of RETScreen to assess the feasibility of alternative formulations for Niksar HEPP, a small hydropower project which is under construction in Turkey.
Classical approach to management is a set of homogeneous ideas on the management of organizations that evolved in the late 19 th century and early 20 century. This perspective emerges from the industrial revolution and centers on theories of efficiency. As at the end of the 19th century, when factory production became pervasive and large scale organizations raised, people have been looking for .
