Feasibility Studies

By Prof. Mohammed I. Migdad

Feb. 2013

A course for a master degree

of economic development

An important work in project

evaluation in developing
countries

Manual for OECD. 1

Manual of industrial project analysis

For
Little & Mirrlees 1969 & 1974
Project appraisal and planning for developing

countries , For
Little & Mirrlees 1982

Manual for UNIDO. 2

UNIDO guideline for project evaluation in

1972.
Manual for the preparation of the industrial
feasibility studies UNIDO 1991. including:
Computer model for feasibility analysis and
reporting (CMFAR III Expert) in 1995.
Guide to practical project appraisal: social
benefit-cost analysis in developing countries

World Bank Guidelines. 3

World Bank Guidelines in 1975.
Economic analysis of projects

by: Squire, L & Van Der Tak 1984.

business success
Establishing a feasibility study of projects

is a critical factor in business success.

Many factors can be involved and
invariably luck can and probably will play
a hand.

Key factor
A key factor in any feasibility study must

be ensuring that you are dealing with

correct facts, correct assumption, and up
to date financial data.

Countless feasibility studies

Any project which have passed a

countless feasibility studies, have been

sunk by unexpected events such as
flood.
Many projects fail because of incorrect
assumptions or because assumptions
were based on incorrect facts.

Preliminary investigation
When complex problems or opportunities

are to be defined, it is generally

desirable to conduct a preliminary
investigation called a feasibility study.
The primary objectives of the feasibility
study is to assess three types of
feasibility

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Types of feasibility Study

1. Technical feasibility
can a solution be supported with the existing
technology or not?
2. Economic feasibility
is the existing technology cost effective?
3. Operational feasibility
Will the solution work in the organization if
implemented?
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The Components of a
Feasibility Study
1. Description of the Business: The product or

services to be offered and how they will be

delivered.
2. Market Feasibility: Includes a description of the
industry, current market, anticipated future market
potential, competition, sales projections, potential
buyers, etc.
3. 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.).
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continue
4. Financial Feasibility: Projects how much start-up

capital is needed, sources of capital, returns on

investment, etc.
5. 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).
6. Conclusions: Discusses how the business can
succeed. Be honest in your assessment because
investors wont just look at your conclusions they will
also look at the data and will question your
conclusions if they are unrealistic.
13

Feasibility Study
A Feasibility Study is the analysis of a

problem to determine if it can be solved

effectively.
The results determine whether the
solution should be implemented.
This activity takes place during the
project initiation phase and is made
before significant expenses are engaged.
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Definition of Feasibility
Studies
A feasibility study is an evaluation of a

proposal designed to determine the

difficulty in carrying out a designated
task. Generally, a feasibility study
precedes technical development and
project implementation.

15

Definition of Feasibility
Studies
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?

16

Objective
The feasibility study answers the basic

questions: is it realistic to address the

problem or the opportunity under
consideration?
And it produce a final proposal for the
management, this final report might
includes:

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Feasibility includes
1.
2.
3.
4.
5.
6.
7.
8.
9.

Project name
Problem or opportunity definition
Project description
Expected benefit
Consequence of rejection
Resource requirements
alternatives
Other consideration
Theorization
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Five common factors

(TELOS)
1.
2.
3.
4.
5.

Technology and system feasibility

Economic feasibility
Legal feasibility
Operational feasibility
Schedule feasibility

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1. Technology and system

feasibility
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 whether the new
system will perform adequately or not this
means that feasibility is the study of the based
in outline.
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2. Economic feasibility
Economic analysis is the most frequently used method

for evaluating the effectiveness of a new system. More

commonly known as cost/benefit analysis, the
procedure is to determine the benefits and savings that
are expected from a candidate system and compare
them with costs. If benefits outweigh costs, then the
decision is made to design and implement the system.
An entrepreneur must accurately weigh the cost
versus benefits before taking an action. Time Based:
Contrast to the manual system management can
generate any report just by single click .
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Legal feasibility. 3
Determines whether the proposed

system conflicts with legal requirements,

e.g. a data processing system must
comply with the local Data Protection
Acts.

22

4. Operational feasibility
Is a measure of how well a proposed

system solves the problems, and takes

advantages of the opportunities
identified during scope definition and
how it satisfies the requirements
identified in the requirements analysis
phase of system development.[1]
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5.schedule feasibility
A project will fail if it takes too long to be

completed before it is useful. Typically this

means estimating how long the system will
take to develop, and if it can be completed in a
given time period using some methods like
payback period. Schedule feasibility is a
measure of how reasonable the project
timetable is. Given our technical expertise, are
the project deadlines reasonable? Some
projects are initiated with specific deadlines.
You need to determine whether the deadlines
are mandatory or desirable.
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Other feasibility factors

Market and real estate feasibility
Resource feasibility
Cultural feasibility

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Market and real estate

feasibility
Market Feasibility Study typically involves testing

geographic locations for a real estate development

project, and usually involves parcels of real estate land.
Developers often conduct market studies to determine
the best location within a jurisdiction, and to test
alternative land uses for a given parcels. Jurisdictions
often require developers to complete feasibility studies
before they will approve a permit application for retail,
commercial, industrial, manufacturing, housing, office or
mixed-use project. Market Feasibility takes into account
the importance of the business in the selected area.

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Resource feasibility
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.
Contingency and mitigation plans should
also be stated here.
27

Cultural feasibility
In this stage, the project's alternatives

are evaluated for their impact on the

local and general culture. For example,
environmental factors need to be
considered and these factors are to be
well known. Further an enterprise's own
culture can clash with the results of the
project.
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Description of the Project

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Identification and exploration of

business scenarios
.Identify alternative scenarios or business

models of what the project will entail, how it will

be organized, and how it will generate profits.
These may come from the idea assessment or
market assessment that you may have already
completed.
Eliminate scenarios that dont make sense.
Flesh-out the scenario(s) that appear to have
potential for further exploration.

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Define the project and

alternative scenarios
Describe the type and quality of

product(s) or service(s) to be marketed.

Outline the general business model (i.e.
how the business will make money).
Include the technical processes including
size, location, kind of inputs, etc.
Specify the time horizon from the time
the project is initiated until it is up and
running at capacity.
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Relationship to the surrounding

.geographical area
Outline the economic and social impact

on local communities.
Describe the environmental impact on
the surrounding area

32

Market Feasibility
This can be based on a market

assessment that you may have already

completed.

33

Industry description
Describe the size and scope of the industry, market

and/or market segment (s).

Estimate the future direction of the industry, market
and/or market segment (s).
Describe the nature of the industry, market and/or
market segment (s). Is it stable or going through rapid
change and restructuring?
Identify the life-cycle of the industry, market and/or
market segment (s). Is it emerging, growing, mature,
declining?
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Industry competitiveness
Describe the industry concentration. Are there just a few

large producers or many small producers?

Describe the major competitors? Will you compete
directly against them?
Analyze the barriers to entry of new competitors into the
market or industry. Can new competitive enter easily?
Analyze the concentration and competitiveness of input
suppliers and product/service buyers.
Describe the price competitiveness of your
product/service.

35

Market potential
Identify whether the product be sold into a commodity

market or a differentiated product/service market.

Identify the demand and usage trends of the market or
market segment in which the product or service will
participate.
Examine the potential for emerging, niche or segmented
market opportunities.
Explore the opportunity and potential for a branded
product.
Assess market usage and your potential share of the
market or market segment.

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Access to market outlets

Identify the potential buyers of the

product/service and the associated

marketing costs.
Investigate the product/service
distribution system and the costs
involved.

37

Sales projection
Estimate sales or usage.
Carefully identify and assess the

accuracy of the underlying assumptions

in the sales projection.
Project sales under various assumptions
(i.e. selling prices, services provided,
etc.).
38

Technical Feasibility
Facility needs.
Estimate the size and type of production

facilities.
Investigate the need for related
buildings, equipment, rolling-stock, etc.

39

Suitability of production
technology
Investigate and compare technology

providers.
Determine reliability and competitiveness
of technology (proven or unproven,
state-of-the-art, etc.).
Identify limitations or constraints of the
technology.
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Availability and suitability of

site
1.
2.
3.
4.
5.
6.
7.
8.
9.

Investigate access to:

raw materials
transportation
labor
production inputs (electricity, natural gas,
water, etc.)
Investigate potential emissions problems.
Analyze other environmental impacts.
Identify regulatory requirements.
Explore economic development incentives.
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Raw materials
Estimate the amount of raw materials

needed.
Investigate the current and future
availability and access to raw materials.
Assess the quality and cost of raw
materials.

42

Other inputs
Investigate the availability of labor

including wage rates, skill level, etc.

Assess the potential to access and
attract qualified management personnel.

43

Financial/Economic Feasibility

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Estimate the total capital

requirements
1.

2.
3.
4.
5.

6.

Assess the seed capital needs of the business project

during the investigation process and start-up, and how
these needs will be met.
Estimate capital requirements for facilities, equipment
and inventories.
Estimate working capital needs.
Estimate start-up capital needs until revenues are
realized at full capacity.
Estimate contingency capital needs due to construction
delays, technology malfunction, market access delays,
etc.
Estimate other capital needs.

45

Estimate equity and credit

needs
Estimate equity needs.
Identify alternative equity sources and capital

availability - family, producers, local investors,

angle investors, venture capitalists, etc.
Estimate credit needs.
Identify and assess alternative credit sources banks, government (i.e. direct loans or loan
guarantees), grants and local and state
economic development incentives.
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Budget expected costs and

returns of various alternatives
Estimate the expected revenue, costs, profit

margin and expected net profit.

Estimate the sales or usage needed to breakeven.
Estimate the returns under various production,
price and sales levels. This may involve
identifying best case, typical, and worst
case scenarios or more sophisticated analysis
like a Monte Carlo simulation.
47

continue
Assess the reliability of the underlying assumptions of the

analysis (prices, production, efficiencies, market access,

market penetration, etc.)
Benchmark against industry averages and/or competitors
(cost, margin, profits, ROI, etc.).
Identify limitations or constraints of the economic
analysis.
Calculate expected cash flows during the start-up period
and when the business reaches capacity.
Prepare pro forma income statement, balance sheet, and
other statements of when the business is fully operating.

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Organizational/Managerial
Feasibility

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Business structure
Identify the proposed legal structure of the business.
Outline the staffing and governance structure of the

business along with lines of authority and decision

making structure.
Identify any potential joint venture partners, alliances or
other important stakeholders.
Identify the availability of skilled and experienced
business managers.
Identify the availability of consultants and service
providers with the skills needed to realize the project,
including legal, accounting, industry experts, etc.

50

Business founders
Character matters - are the people involved of

outstanding character?
Do the founders have the fire in the belly
required to take the project to completion?
Do the founders have the skills and ability to
complete the project?
What key individuals will lead the project?
Is there a reward system for the founders? Is it
based on business performance?
Have the founders organized other successful
businesses?
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Study Conclusions
Identify and describe alternative

business scenarios and models.

Compare and contrast scenarios based
on goals of the producer group.
Outline criteria for decision making
among alternatives.

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Why Are Feasibility Studies

?so Important
1.
2.
3.
4.

5.

The information you gather and present in

your feasibility study will help you:
List in detail all the things you need to make
the business work;
Identify logistical and other business-related
problems and solutions;
Develop marketing strategies to convince a
bank or investor that your business is worth
considering as an investment; and
Serve as a solid foundation for developing
your business plan.
53

continue
Even if you have a great business idea you still have to

find a cost-effective way to market and sell your products

and services. This is especially important for store-front
retail businesses where location could make or break
your business.
For example, most commercial space leases place
restrictions on businesses that can have a dramatic
impact on income. A lease may limit business
hours/days, parking spaces, restrict the product or
service you can offer, and in some cases, even limit the
number of customers a business can receive each day.
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Feasibility studies V
business plans
A feasibility study is designed to discover if a

business is "feasible" or not. It will answer

questions such as "will your idea work?" [new
window] It is an essential first step before
spending money and time on more detailed
plans. The information gathered is not wasted as
it can be incorporated into the Business Plan.
On the other hand a Business Plan is a more
detailed and in depth document that incorporates
the information gained from a feasibility study
plus specific timelines, detailed budgets with
forecasts and a detailed financial strategy.
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Feasibility before business

plan
Before you begin writing your business plan

you need to identify how, where, and to whom

you intend to sell a service or product. You
also need to assess your competition and
figure out how much money you need to start
your business and keep it running until it is
established.

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Feasibility is a tool for a

business plan
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.

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...Before you get started

Are you suited to working in a small

business environment? Answer this

checklist [new window 69 kb] or
take the business readiness quiz
[new window] to get an idea if this
is what you really want and whether
you have the personality, skills and
temperament to succeed.
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The feasibility study

framework
The document should include sections on:
Personal details
The Business Idea
Critical factors
Market analysis
Resource requirements
Financial viability
Capital requirements
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Use this template to:

Perform a preliminary study to determine a project's
viability.
Analyze an existing system to see if it is worth upgrading.
Determine if there is sufficient time to build the new
system, when it can be built, whether it interferes with
operations, type and amount of resources required,
dependencies, etc.
Establish the cost-effectiveness of the proposed system.
Determine if the system conflicts with legal requirements.

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