FEASIBILITY STUDY IN A PROJECT

FEASIBILITY STUDY

Feasibility study is the process of analyzing the viability of a project at minimal risk.

As soon as it’s certain that a specific project could be carried out profitably, it’s only then, that it

can be implemented

A feasible project will generate enough cash flow/profits, withstand the risks along the way and

remain viable in the long term to meet the goals of the founders and stakeholders

STEPS UNDERTAKEN IN CONDUCTING A FEASIBILITY STUDY

1. Conducting a Preliminary analysis

This is scrutinizing the project ideas way before time, effort and money are wasted doing the

study. It involves:-

1. Listing down the possible planned services, target market and characteristics of the services by

answering the following questions:

-Will the project serve a currently unserved need? E.g. a certain age group which is not being

currently served

-Can the project successfully compete with an existing one because it has an advantageous

situation like better design, price, location or it’s readily available?

-Will the project serve an existing market in which demand exceeds supply?

2. Determining whether there are insurmountable obstacles. A “Yes” response to the following

will indicate that the idea has little chance of success:

-Are the capital requirements unavailable or unaffordable?

-Do any factors prevent effective marketing to any or all referral sources?

If the information gathered from the above shows that the project has potential, then one can

continue with a detailed feasibility study

2. Preparing a projected income statement

This is looking at the anticipated income or benefits from the proposed project. The income must

cover both direct and indirect costs taking into consideration the expected income growth curve.

Working backwards from the anticipated income, the revenue necessary to generate that income

can be derived in order to build a projected income statement.

Factors that will determine this statement are services provided, fees for those services, volume

of services and adjustments to revenues.

3.Conducting a market survey

A market survey will help in getting a realistic projection of revenues. It will involve the

following:-

-Defining the geographic influence of the market

-Review of population trends, demographic features, cultural factors and purchasing power in the

community

-Analyzing the competing services already existing in the community and evaluating their major

strengths and weaknesses

-Determining the total volume in the market and estimating expected market share

-Estimating the market expansion opportunities

4.Planning business organization and operations

This is done to determine the total costs that will be involved in implementing the proposed

project. Extensive effort is necessary to develop detailed plans for:-

-Equipment

-Merchandising methods

-Facility location and design

-Availability and cost of personnel

-Supply availability

-Overhead costs

5. Preparing an opening day balance sheet

This balance sheet should reflect the assets and liabilities as accurately as possible at the time the

project begins before the project starts generating income.

It involves preparing a list of assets and liabilities for operations to start. The list should include

item, source, cost and available financing methods.

Necessary assets include everything from cash necessary for working capital to buildings and

land.

Liabilities to be incurred and the investment required by the practice must also be clarified.

These items need to be considered:

-Whether to lease or buy land, buildings and equipment

-How to finance asset purchases

-How to finance accounts receivable

6.Reviewing and analyzing all Data

This involves determining if any data or analysis performed should change any of the preceding

analysis. Usually done by:-

-Re-examining the projected income statement and comparing with the list of desired assets and

the opening day balance sheet. Given all expenses and liabilities, does the income statement

reflect realistic expectations?

-Analyzing risks and contingencies. Consider the likelihood of significant changes in the current

market that could alter projections.

7.Making a “Go/No Go” decision

If the preceding steps indicate that the project should yield at least the desired minimum income

and has a growth potential, a ‘Go’ decision is appropriate. Anything less mandates a ‘no go’

decision. Additional considerations include:

-Is there a commitment to make the necessary sacrifices in time, effort and money?

-Will the activity satisfy long term aspirations?

FEASIBILITY STUDY COMPONENTS

A feasibility study contains five major components namely:-

Marketing study-Done to determine if there are sufficient demands for the service/product as

well as the competitive position of the firm in the industry. Sales projection for the project must

also be investigated.

Technical study-The manufacturing process, plant size, production schedule, machinery, plant

location and layout, structure, raw materials, utilities and waste disposal is taken into

consideration during technical study

Management study-This study looks at how the project will be managed such as project

organization chart and function of each unit management personell, skills and number required.

Financial study-During this study, the researcher includes the assessment of total capital

requirements, break-even outputs, sales and prices, amount of sales required to earn a certain

amount of profit and the cash payback period

Social desirability-This is a measure of the economic benefits of the project to the people living

within the community and its environs