feasibility study chapter 2

Preliminary feasibility studyOr Pre-investigation

Chapter 2

Feasibility Study

Econ 4315

prepared by: Abd ElRahman J. AlFar

Preliminary feasibility

• A Pre-feasibility Study is conducted to obtain an overview of the problem and to roughly assess whether feasible solutions exists prior to committing substantial resources to a project, or even before spending a lot of money for the feasibility Study itself.


The preliminary feasibility study should survey the market preliminary and comes out with all the following:• permitting or attracting a joint venture partner

• The substitute goods, and services and production estimates corresponding to each product and technologies used by the producers.

• Availability of key production elements (factors) required for project.

• Project execution duration.


Cont.

• approximate size of investment and operating expenditures

• Any restrictions or other factors could have a significant impact on the proposed project execution.

• Policies and key government regulations and laws related to the project.

• Reduce the cost of the final feasibility study.


You must know very well

• the preliminary feasibility study precedes the detailed feasibility study and entrepreneur must do the preliminary feasibility study


Why we have to do a preliminary feasibility study ?• Detailed feasibility study bearing high costs, before we go for detailed

feasibility study and hold high expense for the project

• Check for problems of substantive, impair the projectimplementation.

• To predetermine inputs origins.

• Initial conceptualization of the nature of the market in General, both for the market of the product or availability of raw materials.

• - Preliminary estimate of the size of investment required.

• - Summarize all the project problems.


• If we finalize the Preliminary feasibility study and we get positive accepted results then we shall proceed for the third phase of the feasibility study that is the detailed feasibility study.


Don’t forget, detailed feasibility study consists of six Main studies as follows:• Legal and investment environment study.

• Market Study and analyses.

• Technical (Engineering and design) feasibility study.

• Financial study.

• Financial and economic evaluation of profitability.

• Social benefits feasibility study.


The objectives of the feasibility studies:

• The main purpose of feasibility study is to identify any critical issues that would prevent the project or venture from being successful in the market place.

• A Feasibility Study is the first stage of the product or service development cycle. Its aim is to analyze the viability of a proposed project, product or service.


We might consider the following as different objectives of the feasibility studies:• Turning dreams into idea.

• Idea into businesses.

• To be aware of the legal and taxes issues

• To be aware of the market, demand supply and pricing and the when to reach the break-even point.

• To check the availability of technology at affordable prices

• To check the availability of money at the exact time, and with suitable cost.


Cont,

• To make sure that the project is profitable depending on all profitability indicators.

• To make sure that the project is able to cover the cost of funding.

• To discuss the different alternatives and to choose the best of them.

• To discuss the outputs, outcomes, direct and indirect effect of the project on the local environment.


• Feasibility Studies are very important both when starting a new business, or identifying a new opportunity for an existing business, such as a new product, service or branch, or to extend the existing businesses.


Why Are Feasibility Studies so Important?

• The Uncertainty which is a constant that businesses of every size face daily. Enter the feasibility study: a chance to ask and get answers to questions that help you to assess potential, and to predict the likelihood of success or failure.


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.

• Also getting customers in the door, encouraging them to spend, and ultimately generating a profit for the project.


Ideal process of the feasibility study

• Establishing project scope - stating exactly what the project is and what it is intended to achieve - its objectives

• Vision/mission statement

• Vision - where do you see this opportunity taking you?

• Situation analysis, history and background of the product/service, industry and the organization

• Identifying the statutory and mandatory requirements

• The aims, goals and objectives of pursuing the opportunity


Ideal process of the feasibility study (cont.)

• Market opportunities

• Current market penetration

• Current market segments

• Projected growth in each market segment

• A review of what is currently on the market

• Customer profile and demographics

• Performance objectives expected



• Estimation of customers and potential revenues

• Critical success factors

• Determination of competitive advantage

• Barriers to entry, education, distribution channels, costs

• Definition of proposed operations/management structure and management methods

• The time frames

• The initial costs involved



• Financing and projected cash flows - where will the money come from?

• Break even analysis

• The pay-back period

• Return on investment

• A report of cost benefits

• Development of an action plan for the project to proceed

• A summary of findings


Positive results should not be forced:

We are not looking for a positive results of the study, rather than a real result, even in it is negative. We should not force a positive result. The negative result is also a good result; it will prevent spending money for a failed project, which will save the money for another alternative.


Assignment 1

After finishing chapter 1 and chapter 2 we discussed the first two phases of conducting a feasibility study which are the brainstorming phase and preliminary feasibility study.

I expect each group had chosen their proposed project idea so they pass the first phase, now the assignment is to prepare anintroduction for your feasibility study that include the following:

• Cover page

• Table of contents (listed later)

• Purpose of the document

• Project name:

• Brief description of the project

• Vision, mission and goals of the project.

• Executive summary (listed later)

• SWOT analysis

• Methodology

• Study team

• Market entry timing

Handling date: Friday 6 October 2017


feasibility study chapter 2

Economy & Finance