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8/4/2019 Copy of Final Feasibility Study
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FEASIBILITY STUDY
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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.
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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, thepurchase of an existing business, an expansion of
current business operations or a new enterprise for
an existing business
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Components of Feasibility Analysis
Product/Service Feasibility Analysis
Industry/Market Feasibility Analysis
Organizational Feasibility Analysis Technical Feasibility Analysis
Economic Feasibility Analysis
Financial Feasibility Analysis
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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.
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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 anddistributed (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
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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.
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Purposes of conducting a concept test
Purpose How it is accomplished
Validate the underlyingpremises of a product or
service idea
By asking prospects what they think (via phoneinterviews, personal interviews, and focus groups and
simply by watching people perform relevant tasks) & aresearch to know about their behaviors & attitudes.
Help develop an ideaA firm may show a product idea to a prospective
customer, get feedback, and tweak the idea. Then, inan iterative manner, theyll show the idea to more
potential customers, get feedback and tweak the idea
some more, and so on.
Estimate the potentialmarket share the
product or servicemight command
Some type of buying intention question appears inalmost every concept test (like definitely would buy,probably would buy, not sure, probably would not
buy & definitely would not buy). The total no ofpeople falling in first two category will suggest an
optimistic estimate of market share.
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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.
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Forms of usability testing
(this is not an exhaustive list)
Form of usability test Explanation
Basic prototypeSome entrepreneurs, with limited budgets, develop a
fairly basic prototype and ask friends and colleagues to
use the product, then complete an evaluation form orgive feedback.
Elaborate usabilitytest
Better funded companies have more elaborateusability tests. For eg, in usability-testing lab
participants can be asked to work with softwareprograms that are being developed, while loggers
record usability problems.
Hybrid tests
There are a number of hybrid tests, that provide a
entrepreneur a sense of a potential usability problemwith a product or service. An example follow-me-
home testing methodology.
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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.
Benefits of Conducting a
Product/ Service Feasibility Analysis
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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.
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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.
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Market Timeliness Considerations
Nature of product/service
introduction
Improvement onsomething alreadyavailable in themarketplace
Breakthrough newproduct or service,which shouldestablish a newmarket segment
Major Considerations
Is the window of opportunity open orclosed?
Is industry consolidating? (good time tolaunch a new firm as, handful of bigfirms takeover the majority of business)
Should we try to capture a first-moveradvantage?
Or go for second mover advantage?
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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
Contd.
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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 broadmarket, which is nearly impossible for a new entrant.
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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
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Management Prowess
A firm should candidly evaluate the prowess, or ability, of itsmanagement team. The most important factors to beconsidered are:
Passion- (Fire in the belly).
Experience & expertise academic qualification, pastexperience & performance.
Understanding of the markets in which the firm willparticipate.
Extent of social and professional networks.
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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 toproceed with the business idea).
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List Nonfinancial resourcescritical 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
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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
Technical Feasibility
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The choice of technology- is influenced by a varietyof 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
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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 culturalconditions?
MANUFACTURING PROCESS/TECHNOLOGY
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Material inputs and utilities maybe classified into Raw materials;Processed materials and components; Auxiliary materials and factory supplieslike 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?
Material Input Analysis
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Refers to the volume or number of units that can bemanufactured 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.
Plant Capacity/ Production Capacity
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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 aport if use of imported RM.
Proximity to Markets: esp if perishable, bulky, heavy, fragile product. Also if large marketgeographically 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
Location and site
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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
Machinery & equipment
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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 effluentsand treatment of emissions?
Waste disposal?
Use of by-products.
Will the project be able to secure all environmentalclearances and comply with all statutory requirements?
Environmental Aspects
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General Functional Layout
Material Flow Diagram
Production Line Diagrams
Transport Layout
Utility Consumption Layout
Communication Layout
Organizational Layout
Plant Layout
Project Charts & Layouts
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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.
Schedule for project implementation