FEASIBILITY STUDY Aspects of Operating a Business

Types of Deals• Contract

– Contracts include three parts:• Serious and definite offer• A consideration, something for which a person is bargaining.• A serious acceptance of the offer.

• Agreement– A non-legally binding deal, often with few set details, and often is not considered official.

Legal feasibility

copyrights, anti-trust laws (systems that share data across organizations), financial reporting requirements, contractual obligations, software ownership, outsourcing arrangements, etc.

• Special permission from the government is needed for some businesses. Often, you need special training and have to take a test. See your lawyer to find out if you must:– Just register with the local or state government. “Hello…I’m in the home repair business.”– Gain a permit from the local government. “Hello, I’d like to go door-to-door, and need a permit.”– Prove you have special skills to get a license.

Business Permits and Licenses

Market Feasibility• Industry Description

– Describe the size and scope of the market– Estimate the future direction of the market– Describe the nature of the market– Identify the life-cycle of the market

Market Feasibility• “Industry” Competitiveness

– Investigate industry concentration– Analyze major competitors– Explore barriers of entry into market– Determine concentration and competitiveness of input suppliers– Identify price competitiveness of service

Market potential• Identify the demand and usage trends of the market or market segment• Examine the potential for emerging market opportunities• Assess estimated market usage and potential share of the market

Market Feasibility• Access to market outlets

– Identify the potential “buyers” of the service and the associated marketing costs– Investigate the distribution system and the costs involved

Technical Feasibility• Determine facility needs

– Estimate the size and type of production facilities– Investigate the need for related building and equipment– Investigate and compare technology providers– Identify limitations or constraints of technology

Technical Feasibility• Availability and suitability of site

– Access to markets– Access to transportation– Access to a qualified labor pool– Access to production inputs– Explore economic development incentives– Explore community receptiveness to have service located there.

• Technical risk– larger projects are riskier

• project team size, project duration, number of organizational units involved, programming effort

– structured and easily obtainable requirements less risky

– use of standard technology less risky than novel or non standard technology• development team familiarity with hardware,

software development environment, OS; application area; systems of similar scope

– less risk when user group is familiar with system development process and application area

• Operational feasibility– likelihood of project attaining desired

objectives– how new system will affect organizational

structures and processes, – how it fits into current day-to-day operations

• Organizational/political feasibility– how key stakeholders in organization view

system– system can affect distribution of information,

thus power

• Schedule feasibility– likelihood that timeframes can be met and

that this is adequate to meet organization’s needs• resource availability to enable schedule

Economic Feasibility:• System Costs:

– Development Costs• IS Personnel, consultants• hardware, software procurement• data conversion• documentation, user trg• Computer room, etc

– Production Costs• operation and maintenance• manpower, software / hardware upgrading,supplies

• System Benefits:– Tangible

• reduced operating costs, transaction costs errors

• Increased transaction throughput

– Intangible• improved customer relations• better decision making, etc

Cost Benefit Analysis:• Payback Point: Development Costs

(Years to payback) Benefits per year

• Sensitivity Factors– Possible variation in cost/benefit estimates

1.1 Cost can be higher by 10%

• Effect of Inflation

• Time Value of Money– Present Value (PV) = amt * 1 / (1 +c) ^ n

n : # of periods in time

c : Cost of Money ( discount rate )

• Profitability Index– Earnings per dollar invested– (Present value of total cash flow) (value of initial investment )– Yearly cash flow = (Projected Annual Benefits) (Projected Annual

Production Cost)