Project Feasibility Study

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Project Feasibility Study by Mind Map: Project Feasibility Study

1. 1. Marketing

1.1. 1.a. Study of Demand

1.1.1. Identify the consumers who are the consumers (men or women, adult or pediatrics, income classification) where are the consumers (location)

1.1.2. Gather information on total past demand Where can data be gathered (other hospitals, NSO or PSA, WHO, DOH, LGUs, DTI, BSP etc.) How to gather information (survey, interview, questionnaire, observation, testing)

1.1.3. Evaluate past demand patterns Pattern of demand (increasing or decreasing) Government programs influencing demand (DOH regulation, Philhealth coverage) Fiscal and monetary policies (drop in lending facility, interest rates, insurance coverage, Senior Citizen & PWD Discounts) Trends in local and world market

1.1.4. Forecast future demands

1.1.5. Evaluate future demand projections

1.2. 1.b. Market Identification

1.3. 1.c. Competition

1.3.1. Direct/Indirect

1.3.2. Strengths/Weaknesses

1.3.3. Market share

1.4. 1.d. Marketing Strategy

1.4.1. 1.d.1. Positioning

1.4.2. 1.d.2. Pricing

1.4.3. 1.d.3. Distribution Channels

1.4.4. 1.d.4. Advertising, Promotion, Trade Shows

2. 2. Technical

2.1. 2.a. Product Identification

2.2. 2.b. Product Specification

2.3. 2.c. Production Planning

2.4. 2.d. Personnel/Manpower Requirements

2.5. 2.e. New and Follow-on Services

2.6. 2.f. Production Volume

2.7. 2.g. Materials and Supplies

2.8. 2.h. Machinery and Equipment

2.9. 2.i. Physical Plant

3. 3. Financial

3.1. 3.a. Basic assumptions

3.2. 3.b. Project cost

3.3. 3.c. Revenue Projections

3.4. 3.d. Capital Assets & Depreciation Schedule

3.5. 3.e. Projected Financial Performance

3.6. 3.f. Projected Cash Flow Statement

3.7. 3.g. Projected Financial Position

3.8. 3.h. Financial Ratios

4. 4. Managerial

4.1. 4.a. Ownership

4.2. 4.b. Management Team

4.3. 4.c. Key Employees

4.4. 4.d. Organizational Chart

4.5. 4.e. Personnel Duties and Responsibilities

5. 5. Socio-Economic

5.1. 5.a. Tax Contributions

5.2. 5.b. Employment Benefits

5.3. 5.c. Cultural Awareness

5.4. 5.d. Social Well-Being of Local Residents

5.5. 5.e. Environmental Sustainability

6. Prescribed Format

6.1. Front Matters

6.1.1. Title Page

6.1.2. Approval Sheet

6.1.3. Certification of Research Acceptability

6.1.4. Acknowledgments

6.1.5. Executive Summary Proposed name of the business In selecting a business name, several important points should be considered since it might be carried for the next few decades or more The business name should Description of the Industry Proponent should cite recent trends in the global market that have bearing on the study Should indicate vividly current programs and thrusts of the local and national government from which the proposed project will benefit The proponent should answer the following: Description of the Project Describes the nature of the project and the product or service it will produce or serve. In case there are available information, the proponent may include incentives provided by the government for such project The proponent should answer the questions: Location of the Project Strategic location – provides a competitive advantage and ensures the attainment of maximum efficiency Answers the following questions: Highlights of Major Assumptions A feasibility study is a business forecast based on a mixture of absolute data and professional opinion of experts in the field. Assumptions facilitate the conduct of the study, and are required in some mathematical and quantitative analysis. They are based on either of the following: Assumptions should be realistic and measurable and is the basic guiding principle If unrealistic spawns an element of doubt as to the reliability of the study among investors Need to answer the following questions: Summary of Findings and Conclusion Usually the last section of the executive summary Presents the findings on every aspect of the study, and the concluding remarks and findings of the proponent based on facts Conclusion is reached after considering all the 5 study areas The proponent should give a specific conclusion and recommendation on each of the aspects and should provide a general conclusion on the whole study which he deems appropriate based on the facts and data. It is a must for the proponent to provide answers to the following questions: In case the answers to these questions are all positive, then the general conclusion of the proponent would indicate a high probability of the feasibility of the proposed project. The proponent however, should never vouch for the attainment of the findings and conclusions If one of the answers turns negative, then a general conclusion cannot be reached.

6.1.6. Table of Contents List of Figures, Tables or Illustrations List of Abbreviations

6.2. Body

6.2.1. Introduction Background Project's Value Proposition

6.2.2. Research Question Market study Is there a demand for the planned product/service offering? If so, can the marketing program effectively meet this demand? Technical study Product Quality. What characteristics distinguish the product from the others in the same category? Resource availability and accessibility. Are required resources available in sufficient quantities and at reasonable cost? Optimal use of resources to produce the highest possible quality at the lowest possible cost. Financial study Profitability Socio-economic study Net positive gain to society and economy from the project Organization & Management study Is the organizational setup optimally effective? Are the recommended key officials the best qualified under the circumstances?

6.2.3. Marketing Study

6.2.4. Technical Study

6.2.5. Financial/Economic Feasibility

6.2.6. Management/Organizational Study

6.2.7. Socio-Economic Impact Study

6.2.8. Conclusions/Recommendations

6.3. End Matters

6.3.1. References

6.3.2. Appendix

6.3.3. Exhibits

7. Concepts

7.1. Nature

7.1.1. Systematic Inquiry There is a procedure or step-by-step process involved in the conduct of a feasibility study (procedural steps are modifiable). The conduct of a feasibility study should have a definite beginning and it should end after a definite period Careful planning is very important and the scientific approach is a valuable tool in fulfilling the plans The whole study is composed of different phases having unique characteristics that ultimately contribute to the attainment of the objectives of the study Objectives of each aspect may differ but they should be well coordinated and interdependent Findings of one aspect should support other areas, or may be used in formulating a solution in other aspects In case viability is not presented or proven or if the true picture of the proposed business project is not presented in one aspect, the whole system will be affected. The whole system will practically be a failure

7.1.2. Proposed Business Activity Intended for profit Primary concern of the study is to enhance business profitability or to improve the interest of the shareholders Profit in accounting terms is the excess of all cost over revenue Examples Regularly undertaken a continuing and progressing economic activity and not a single disconnected act Evenly carried out conducted over the year Regularity of business differentiates it from other endeavors like project management Financial in character Financial activity involves exchange of monetary values with other party All study aspects except for socio-economic phase, are expressed in monetary terms Studies of non-financial character, e.g. improving the health condition of a community and other related studies, are not project feasibility studies

7.1.3. Viability in All Areas There are instances when a project is viable in one aspect but not feasible in other areas Viability in all areas ensures a higher chance of attracting and convincing prospective investors

7.1.4. Measure of Profitability Profitability not only for a short period but over the entire life of the activity The level of profitability is compared with other possible projects The proposed project may be profitable but if below other projects with similar capital base/ manpower requirements/ management capability, such profitability does not carry weight in the evaluation and implementation processes. Investors may not commit funds to such project as it involves opportunity cost. Project profitability level equal or above industry standards assures sustainability Well-developed feasibility studies will hedge against impact of foreseen future scenarios

7.2. Purposes

7.2.1. To enhance the sustainability of a business currently undertaken;

7.2.2. To facilitate easily the evaluation of a project’s success in all areas covered by the study;

7.2.3. To seek the infusion of additional fresh working capital from a financial institution;

7.2.4. To determine the recovery period of capital investment or expected return of investment;

7.2.5. To serve as measuring instrument in evaluating actual project results against what the study reveals;

7.2.6. To reduce, if it cannot be totally avoided, the expected business difficulty that may be experienced during implementation; and

7.2.7. To meet and satisfy the requirements set by the investors of the proposed business project.

7.3. Ideal Qualities

7.3.1. Comprehensive Covers all the areas that need to be scrutinized Should present the overall perspective of the proposed project so that users are properly guided in making an economic decision

7.3.2. Objective Unbiased presentation of the findings of the study based on a fair evaluation and critical analysis of data from various sources Data should not be manipulated to meet the specific needs of an investor and should not be directed towards a purpose. Should not be distorted by the fact that it is a combination of both facts and the professional opinion of the project proponent Should not only contain absolute facts and figures from quantitative sources but documented opinion and assumptions as well, to make it persuasive and balanced Should indicate the strong and weak points of the proposed project and advantages and disadvantages of a strategy or method of the analytical process

7.3.3. Simple To enhance understanding Orientation and background of its prospective readers should be taken into consideration when preparing the final output If technical terms cannot be avoided, they should be expressed at the level of the reader’s understanding Terms and concepts should be clearly defined and explained in such a way that they can easily be understood

7.3.4. Reliable There is a high degree of truthfulness in the available data, In the analysis and evaluation, and in the conclusion of the study Study is considered reliable when it satisfies fully the requirements of objectivity, is considerably free from errors, and is neutral Data are not manipulated and findings are not directed towards the need of a specific user Reliability also depends on the qualifications of the person preparing the study (good academic background, long working experience in the specific field of study and in related areas, and skills and technical expertise on the area of specialization)

7.4. Usefulness

7.4.1. 1. For the benefit of the proponent, it is still the most scientific instrument, with different interdependent aspects, that can be used in project design or redesign.

7.4.2. 2. It can minimize, if not totally eradicate, the business difficulty that may be experienced in the actual implementation of the project. This will greatly benefit the prospective investors.

7.4.3. 3. It is considered as the most reliable instrument in deciding whether to implement or discard a project, which again, would directly benefit the investors.

7.4.4. 4. It is the most comprehensive medium with which to evaluate a project in terms of funding or additional fresh capital or tax exemption incentives. Financial institutions and government agencies could make use of results in these areas of the feasibility study.

7.4.5. 5. It is an effective tool in evaluating the profitability level and sustainability of a proposed project. Prospective investors put much weight on this aspect of a project during the analytical process.

7.5. Limitations

7.5.1. 1. Valuable information greatly needed in the study is not readily available. The different organizations that are expected to be providers of information, both government and non-government, do not have the information themselves.

7.5.2. 2. The cost of gathering necessary data required in the analysis, formulation of conclusions, and drafting of recommendations is very high. In cases when the required data are not used because of the high cost of gathering such data, and conclusions are reached based merely on available information, questions may arise as to the reliability of findings and conclusions.

7.5.3. 3. The competitors may have available data directly related to their operations, but they may hesitate to share such information because of confidentiality in terms of effects on taxation, production process, marketing strategies, market share, and other related aspects of the business. Business entities usually do not open themselves to competitors, both existing and prospective.

7.5.4. 4. The person undertaking the study may not have acquired the necessary professional expertise and competency in making the feasibility study. High-order and critical thinking skills are required in preparing a feasibility study, in addition to the basic requirements of educational background in the field of economics, industrial engineering, accounting, financial investment, laws, and taxation.

7.5.5. 5. A feasibility, though conducted by a competent individual and with all necessary data available, remains a forecast and nobody can vouch for its attainability. A forecast is a projection of what may happen in the future, and it is usually based on the trend of past events. What happens in the future maybe the result of a trend in the past but a feasibility study can only provide indicators of probability.

7.6. Factors Affecting FS Preparation

7.6.1. Requirements of Prospective Investors There is no standard template for a feasibility study. The arrangement of the different parts and sections is often prescribed by the funding agency or prospective investors. Request for additional data and evaluation by the investors, other than those considered basic parts of a feasibility study, will mean more tome and cash requirements to finish.

7.6.2. Party preparing the Study Economist – studies trends on supply and demand of goods, including prices Industrial Engineer – studies the production process, waste management, and efficient use of resources, particularly energy Mechanical Engineer – designs the physical plant, machinery, and other mechanical equipment required for the project; Marketing Consultant – designs marketing strategies, creates a marketing plan, and determines the appropriate marketing mix; Accountant – prepares the necessary projected financial statements and schedules Lawyer – prepares the legal documents required by the different agencies, banks, and other monitoring offices Human Resource Officer – provides the necessary inputs on staffing, job descriptions, and qualification standards of personnel

7.6.3. Purpose of the Study It is a common notion that a feasibility study is solely intended for a new project. This is not the case though. It also applies to existing businesses by providing the following information: Market information on the plan to expand; Product information on the plan to offer new product to the market; Competition analysis because of entrance of a new competitor; and Demand study on the plan to launch a new service. However, a feasibility study conducted to determine the viability of a new major project entails more preparation, analysis, time, and funding than a study for an existing or old business endeavor.

7.6.4. Size of the Project Has a direct relationship with the different factors affecting the preparation of the feasibility study? Also, expressed in terms of investment requirements

7.6.5. Type of Industry Industry refers to a group of companies that have common characteristics and are related in terms of operational processes, products sold, market, functions or services offered. Broadly, industries are classified as extractive (primary industry that extract natural resources and sell the product without further processing), manufacturing (processes raw materials from the primary industry and sell the finished goods to industrial or individual consumers), and service industries (composed of companies rendering services to the market). Industries can also be classified per the products they sell such as automotive, fish, entertainment, electronic, utility industry and the like.

7.7. FS Classifications

7.7.1. As to amount of investment Micro entity <3M Small and medium-sized entity (3M to 350M) Large entity >350M

7.7.2. As to status of the project New project Expansion of an existing business enterprise

7.7.3. As to industry classification

7.7.4. As to nature of management Newly-hired managerial personnel Existing officers depending whether the project is aligned to the capabilities of the existing management or not

7.7.5. As to liability of investors Sole proprietorship and partnership – liability to creditors is not limited to the investment but creditors can run after the personal properties of the owner Corporation – liability is limited to the investment

7.8. Parties Requiring FS

7.8.1. Prospective investors

7.8.2. Management

7.8.3. Proponents

7.8.4. Financial institutions

7.8.5. Shareholders

7.8.6. Government

7.8.7. Prospective Investors Interested in knowing the viability of a proposed project Determine if profitability of the business can be sustained during its entire life Determine amount of funds to be committed Determine the rate of return on invested capital

7.8.8. Management Determine viability of proposed expansion Determine appropriate selling price of an existing business which the organization is planning to dispose of Determine the appropriate price of a business which the company plans to buy Determine the gap between expected demand and estimated supply for a new product line that the business plans to introduce

7.8.9. Proponents Test the viability of a new project through the application of appropriate projection tools Answer the queries of other interested parties Identify possible ways to improve project specifications, particularly through a market study Use the study as an instrument in attracting prospective investors

7.8.10. Financial Institutions Determine the capacity of the proposed project/s to settle their financial obligations before they extend the necessary credit Define the terms and conditions for credit extended, particularly the interest rates, repayment period or collaterals used to secure the amount borrowed

7.8.11. Shareholders To have a basis for making decisions on the sale of an existing business or the purchase of a new one To be able to decide whether to commit additional fresh capital on a proposed new project or not To determine the expected return on their investments on a new project

7.8.12. Government agencies Determine whether the project complies with minimum requirements Determine whether the project need to be supported in terms of providing incentives or grants Ascertain whether the project contributes to the socio-economic program of the government