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FEASIBILITY STUDY

What is Feasibility Analysis?


To determine whether a business idea is viable/ is worth pursuing or proceeding with?
before spending a lot of resources on them.

If a business idea is deemed unworkable, it should be dropped or rethought. A feasibility study is a management-oriented activity. After a feasibility study:
management makes a go/no-go decision.

What is a feasible business venture?


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 meet the goals of the founders The venture can be a new start-up business, the purchase of an existing business, an expansion of current business operations or a new enterprise for an existing business

Components of Feasibility Analysis

Product/Service Feasibility Analysis Industry/Market Feasibility Analysis Organizational Feasibility Analysis Technical Feasibility Analysis Economic Feasibility Analysis Financial Feasibility Analysis

Preparing a Concept Statement


Before a company undertakes a feasibility analysis, a concept statement should be developed. A concept statement is a one page description of a business, that is distributed by a startup entrepreneur 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 of the business idea; and suggestions for how the idea can be strengthened or tweaked before proceeding further.

Preparing a Concept Statement


Information to Include
A description of the product or service being offered (What) The intended target market (Who) The benefits of the product or service (Why) A description of how the product will be positioned relative to similar ones in the market A description of how the product or service will be sold and distributed (How) Information about the founder or founders of the firm
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Product/Service Feasibility Analysis


Is an assessment of the overall appeal of the product or service being proposed. The idea is that before a prospective firm rushes a product or service into development, it should be confident that the product or service is what its prospective customers want. The two components of a product/service feasibility analysis are:
Concept testing Usability testing

Concept Testing
A concept test involves showing a representation of the product or service to prospective users to gauge their interest, desirability, and purchase intent. A concept test is different from a concept statement. A concept test is limited to testing the feasibility of a specific product or service idea. A concept statement is a preliminary evaluation of an entire business idea.

Purposes of conducting a concept test


Purpose
Validate the underlying premises of a product or service idea

How it is accomplished
By asking prospects what they think (via phone interviews, personal interviews, and focus groups and simply by watching people perform relevant tasks) & a research to know about their behaviors & attitudes. A firm may show a product idea to a prospective customer, get feedback, and tweak the idea. Then, in an iterative manner, theyll show the idea to more potential customers, get feedback and tweak the idea some more, and so on. Some type of buying intention question appears in almost every concept test (like definitely would buy, probably would buy, not sure, probably would not buy & definitely would not buy). The total no of people falling in first two category will suggest an optimistic estimate of market share. 3-9

Help develop an idea

Estimate the potential market share the product or service might command

User/ Usability Test/ Beta tests/ Field Trials


Is the method by which users of a product are asked to use the prototype (mock-up) of the product in order to measure the products ease-of-use and the users perception of the experience.
While it is temping to rush a new product or service to market, conducting a usability test is a good investment of an entrepreneurs or firms resources. Many products that consumers find frustrating to work with have been brought to market too quickly.

Forms of usability testing


(this is not an exhaustive list)

Form of usability test

Explanation
Some entrepreneurs, with limited budgets, develop a fairly basic prototype and ask friends and colleagues to use the product, then complete an evaluation form or give feedback. Better funded companies have more elaborate usability tests. For eg, in usability-testing lab participants can be asked to work with software programs that are being developed, while loggers record usability problems.

Basic prototype

Elaborate usability test

Hybrid tests

There are a number of hybrid tests, that provide a entrepreneur a sense of a potential usability problem with a product or service. An example follow-mehome testing methodology.

Benefits of Conducting a Product/ Service Feasibility Analysis


Gives better understanding of what customer wants. Helps getting the product right the first time. Avoiding any obvious flaws in product or service design. Using time & capital more efficiently. A bets community emerges- the firms or individuals that participate in the FA often become a companys first customers/ adopters. Helps estimating the potential market share. Helps gaining insight into additional product & service offerings.

Industry/Market Feasibility Analysis


Is an assessment of the overall appeal of the market for the product or service being proposed. There are three primary issues that should be considered: Industry Attractiveness Market timeliness Identification of a niche market.

Characteristics of an attractive Industry


Is Large (demand & sales) Is Growing (Growth being more important than size) Is important to the customer- (must have) Is fairly young rather than older/mature- (PLC) Has high Operating margins Industry Competitiveness- Less/ Is not crowded Explore the opportunity and potential for a differentiated/ branded product". Explore barriers/ease of entry Determine concentration & competitiveness of input suppliers and product/service buyers. Identify price competitiveness of product/service. The nature of the industry/ market (stable or going through rapid change and restructuring).

These criteria are an ideal list, the extent to which a new business satisfy these criteria should be taken seriously.

Market Timeliness Considerations


Nature of product/ service introduction
Improvement on something already available in the marketplace

Major Considerations
Is the window of opportunity open or closed?
Is industry consolidating? (good time to launch a new firm as, handful of big firms takeover the majority of business) Should we try to capture a first-mover advantage? Or go for second mover advantage?

Breakthrough new product or service, which should establish a new market segment

Contd.
First mover
Advantage
Brand recognition & market power Eg. Palm, Yahoo, Nokia

Disadvantage
High R&D costs Quick copied by competitor or comes out with a slightly better version

Second mover Advantage


Studying all the mistakes done by the first mover

Identification of a Niche Market


A niche market is a place within a larger market segment that represents a narrower group of customers with similar interests. For a new firm, selling to a niche market makes sense, reasons:
It allows a firm to establish itself within an industry without head on competition against major competitors. It allows a firm to focus on serving a specialized market very well instead of trying to be everything to everybody in a broad market, which is nearly impossible for a new entrant.

Organizational Feasibility Analysis


Organizational Feasibility
Is whether the business has sufficient skills and resources to bring a particular product or service idea to market successfully. There are two primary issues to consider in this area:
Management prowess Resource sufficiency

Ensure an efficient Business structure: Outline the governance, lines of authority and decision making structure, Recruitment (policy & procedures), Training programmes, Compensation package

Management Prowess
A firm should candidly evaluate the prowess, or ability, of its management team. The most important factors to be considered are: Passion- (Fire in the belly). Experience & expertise academic qualification, past experience & performance. Understanding of the markets in which the firm will participate. Extent of social and professional networks.

Resource Sufficiency
An assessment of whether an entrepreneur has sufficient resources to launch the proposed venture. The focus here should be on nonfinancial resources in that financial feasibility is considered separately.

To test resource sufficiency, a firm should list the 6 to 12 most critical nonfinancial resources that will be needed to move the business idea forward successfully. (If critical
resources are not available in certain areas, it may be impractical to proceed with the business idea).

List Nonfinancial resources


critical to the successful launch of a new business
Availability of a strategic & affordable location/ space Likelihood of local and state government support of the business Quality of the labor pool available Willingness of high quality employees to join the firm Proximity to key suppliers and customers Likelihood of establishing favorable strategic partnerships. Proximity to similar firms for the purpose of sharing knowledge Identify availability of consultants and service providers with the skills needed to realize the project, including legal, accounting, industry experts, etc. Possibility of obtaining intellectual property protection in key areas

Technical Feasibility
Manufacturing Process/ technology Material/ Input analysis Plant capacity Location / site Machineries and equipments Structures and civil works Environmental aspects Project charts and layouts Project implementation schedule Need for considering alternatives

MANUFACTURING PROCESS/TECHNOLOGY
The choice of technology- is influenced by a variety of considerations:
What kinds of technology will we need?- state-of-the-art technology/ but most prefer to use mature and proven technology/ current technology Is the required technology available in house or is locally available? If not available can it be acquired? Will it be compatible with other systems? Plant capacity Principal inputs Investment outlay and production cost Product mix Latest developments Ease of absorption

MANUFACTURING PROCESS/TECHNOLOGY
Appropriateness of Technology - refers to those methods of production which are suitable to local economic, social, and cultural conditions. Technology should be evaluated in terms of the following questions:
Whether the technology utilizes local raw materials? Whether the technology utilises local man power? Whether the goods and services produced cater to the basic needs? Whether the technology protects ecological balance? Whether the technology is harmonious with social and cultural conditions?

Material Input Analysis


Material inputs and utilities maybe classified into Raw materials;
Processed materials and components; Auxiliary materials and factory supplies like chemicals, additives, Packaging materials, paint, varnishes; and Utilities like Power, water, steam, fuel, etc

The following questions should be raised while conducting the inputs study:

What quantities are required? What are the sources of supply? What would be the potential availability? What are the likely shortages/ bottlenecks? What measures may be taken to augment supplies? What are their current & prospective costs?

Plant Capacity/ Production Capacity


Refers to the volume or number of units that can be manufactured during a given period.
Technological requirement : Based upon industry; there is some minimum capacity of the Plant. Input Constraints: Power Supply, Raw Material Investment Cost: Investment cost per unit decreases as the capacity of the plant increases. Market Conditions: Depends upon demand supply and economy of the country. Resources of the firm: Both managerial & financial limitation Government policy: location is influenced by certain governmental restrictions and inducements. Inducements consisting of subsidies, confessional finance, sales tax loans, man power subsidy, income tax benefits, lower promoter contribution etc are there for establishing industries in backward areas.

Location and site


Factors to be considered:
Proximity to Raw Materials: esp in resource-based project like a cement plant should
be located close to the source of limestone; to iron ore in the case of steel plant; close to a port if use of imported RM.

Proximity to Markets: esp if perishable, bulky, heavy, fragile product. Also if large market
geographically spread.

Cost of land and cost of site preparation & development. Natural & Climatic factors Facilities: industrial estates:
Availability of power- cost, uninterrupted supply? Transportation (well connected by land, air, sea), Water supply- quantity, quality, stability of supply Communications.

Labour Situation: esp In labour intensive projects. The key factors to be considered are:
Availability of labour, skilled, semi skilled and unskilled Labour productivity/ skills Prevailing labour rates State of industrial relations judged in terms of the absenteeism, frequency and severity of

Machinery & equipment


Factors to be considered:
Specifications Reliability of performance Quotation from suppliers Purchase/ Lease Terms of payment? Support/ back-up services- Availability of power to set up an electricity intensive plant Spare part availability Difficulty in transporting heavy equipment to a remote location. Workers may not be able to operate Procurement of plant

Environmental Aspects
A project may cause environment pollution in various ways : it may throw gaseous emissions; it may produce liquid and solid discharges;
What are the types of effluents and emissions generated? What needs to be done for proper disposal of effluents and treatment of emissions? Waste disposal? Use of by-products. Will the project be able to secure all environmental clearances and comply with all statutory requirements?

Project Charts & Layouts


General Functional Layout Material Flow Diagram Production Line Diagrams Transport Layout Utility Consumption Layout Communication Layout Organizational Layout Plant Layout

Schedule for project implementation


For preparing the project implementation schedule the following information is required:
List of all possible activities from project planning to commencement of production The sequence in which various activities have to be performed. The time required for performing the various activities. The resources normally required for performing the various activities. The implications of putting more resources or less resources than are normally required.