HOW TO

PREPARE A
FEASIBILITY
STUDY
LIDANY F. CORNILLEZ, MEngg.
Asst. Professor, UEP College of Engineering
Director, UEP-AREC & UEP-IPU-ITSO

What is a FEASIBILITY
STUDY?

is an evaluation and
analysis
of
the
potential
of
a
proposed
undertaking which is
based on extensive
investigation
and
research to support
the
process
of
decision making.

is a thorough and
systematic
analysis
of
all
factors
affecting the chances
of
success
of
a
proposed
undertaking.

 The

elements
to include in a
feasibility
study
vary
according
to
the
type
of
business
venture
analyzed
and
the
kind
of
market

 The

success of
a
feasibility
study is based
on the careful
identification
and
assessment of
all
of
the
important
issues
for
business

 Depending

on
the
business
project,
it
addresses the
question of Is
this a viable
business
venture?.

 Remember,

the
basic premise of
a
feasibility
study
is
to
determine
the
potential
for
success
of
a
proposed
business
venture.

Typical Feasibility Study Process

- feasibility and
FS
viability study,
Packaging
conclusion &
Selecting the
recommendation
- Comparison
of options,
Best Option
formulation of
assumptions & prefeasibility study

Investigation -

Data gathering (useful facts

& figures)

Conceptualizati
on & Scoping- Identification of the
idea/potential project, options
& data collection

SCOPE OF FEASIBILITY
STUDY
PROJECT CONCEPTION
FINANCIAL ANALYSIS
NEED ANALYSIS
SOCIO-ECONOMIC ANALYSIS
MARKET ANALYSIS
SENSITIVITY ANALYSIS
TECHNICAL ANALYSIS
RISK ANALYSIS
MANAGEMENT ANALYSIS

FS OUTLINE

TITLE OF THE BUSINESS

NAME OF THE PROPONENT
EXECUTIVE SUMMARY
BACKGROUND OF THE BUSINESS
MARKET FEASIBILITY

Industry Profile
Product/Service Description
Market Segmentation
Target Market
Market Structure

 MARKET

FEASIBILITY. . . contd.

Demand and Supply Analysis

Demand-Supply Gap
Market Share Analysis
Market Smart Objectives
Marketing Strategy

SWOT/TOWS Analysis
Ansoffs Growth Strategy Model and Porters Generic
Strategy

 MARKET

FEASIBILITY. . . contd.

Marketing Plan

Market Smart Objectives

The Plan for the 7 Ps of Marketing
Implementation Control & Evaluation System
Marketing Plan/Road Map

TECHNICAL FEASIBILITY

Product/Service Description
Production Capacity, Process & Schedule
Packaging
Direct Materials Requirement

 TECHNICAL

FEASIBILITY . . . contd.

Indirect Materials Requirement

Warehousing and Storage
Machineries and Equipment
Plant Layout

ORGANIZATIONAL/MANAGEMENT
FEASIBILITY
Type of Business Organization/Business Structure
Manpower Requirement & Responsibilities
Organizational Management Plan

FINANCIAL FEASIBILITY

Source of Funds
Project/Investment Cost
Financial Assumptions
Financial Schedules
Projected Financial Statements
Financial Analysis

SOCIO-ECONOMIC FEASIBILITY
Service Area Profile
Related Laws & Regulation
Present Socio-economic Profile of the Service Area

 SOCIO-ECONOMIC

FEASIBILITY . . . contd.

Expected Benefits to be Derived

Government/Local Government Unit
Community

SENSITIVITY AND RISK ANALYSIS

Sensitivity Analysis
Risk Analysis

IMPLEMENTATION PLAN

TITLE OF THE BUSINESS

Presents the nature of business venture

example: Feasibility Study of a Floating
Island Business Center.

NAME OF THE PROPONENT

Presents the name/s of who made the

feasibility study, the name of the presenter
or the name of the owner himself.

EXECUTIVE SUMMARY
Although the executive summary is presented
first, it is written last.
Is a summary of all key sections of the
feasibility study.

Write this section after the content in marketing,

technical, management, financial & socio-economic,
etc. of the feasibility study is completed.

Should be no more than one page long.

BACKGROUND OF THE BUSINESS

Describe the rationale why and how the proposed
business venture was conceptualized.
Define the project whether it is a new venture or
an expansion of an existing business.
Describe the type and quality of product(s) or
service(s) to be marketed.
Specify the time horizon from the time the project
is initiated until it is up and running at capacity.

MARKET FEASIBILITY

Industry Profile
Clearly define and describe the industry in
which the enterprise operates. Include the size,
growth rate and outlook.
Define key industry segments and state where
enterprise fits in.
Describe the size and scope of the industry,
market and/or market segment(s).

MARKET FEASIBILITY . . .
contd. .

Industry Profile . . . contd.

Estimate the future direction of the industry,
market and/or market segment(s).
Identify the life-cycle of the industry, market
and/or market segment(s). Is it emerging,
growing, mature, declining?
Describe the industry concentration. Are there
just a few large producers or many small
producers?

MARKET FEASIBILITY . . .
contd. .

Industry Profile . . . contd.

Describe the major competitors? Will you
compete directly against them?
Analyze the barriers to entry of new competitors
into the market or industry. Can new
competitive enter easily?
Analyze the concentration and competitiveness
of input suppliers and product/service buyers.
Describe the price competitiveness of your
product/service.

MARKET FEASIBILITY . . .
contd. .

Product/Service Description
Describe the product or service in simple
language.
Describe key components or raw materials that
will be used in the product, how the enterprise
will source these and how available they are.
Describe how the product will be packaged and
sold in the target market.
Describe how customers would buy and use the
product or service.

MARKET FEASIBILITY . . .
contd. .

Market Segmentation
Identify the potential customers of the
product/service by segmenting the market
potential.
Identify whether the product be sold into a
commodity
market
or
a
differentiated
product/service market.

MARKET FEASIBILITY . . .
contd. .

Target Market
After segmenting your potential market, decide
who will be your target market.

MARKET FEASIBILITY . . .
contd. .

Market Structure
Identify the potential buyers of the product/service
and the associated segmented target market.
Identify whether the product be sold into a
commodity
market
or
a
differentiated
product/service market.
Describe the general structure of the market
whether it would be in a perfectly structured
market or in an imperfectly structured one.

MARKET FEASIBILITY . . .
contd. .

Demand and Supply Analysis

Identify
the
potential
buyers
of
the
product/service and the existing competitors.
Describe the associated segmented target
market or the service area.
Identify the demand and usage trends of the
target market or market segment in which the
product or service will be consumed /used.

MARKET FEASIBILITY . . .
contd. .

Demand and Supply Analysis . . . contd.

Project the demand using the existing growth rate in
the service area and based on optimum target
considering limitations and market barriers.
Identify the supply and distribution trends of the
competitors in which the product or service will be
consumed /used.
Project the supply using the existing growth rate of
competitors capacity in the service area and based
on
secondary
data
from
concerned
institutions/agencies and/or primary data from the
competitors.

MARKET FEASIBILITY . . .
contd. .

Demand and Supply Gap

Tabulate/make a matrix to present the annual
difference between the projected demand and
supply in order to get the demand-supply gap.

Market Share Analysis

Identify the competitors share in the target market.
Carefully identify the available market share in the
service area less the competitors share.
Determine the target market share of your
enterprise.

MARKET FEASIBILITY . . .
contd. .

Marketing Strategy
Conduct a SWOT/TOWS Analysis of your enterprise.
Identify the strengths and weaknesses of your enterprise,
and the opportunities and threats surrounding/influencing
it.
Pair your strengths with opportunities and threats, as well
as weakness with opportunities and threats, in order to
be able to formulate your marketing strategies.

Describe your market structure and marketing

channel (sell direct to customers through sales force,
direct
selling,
sell
through
manufacturers
representatives, wholesalers, distributors or retailers).

MARKET FEASIBILITY . . .
contd. .

Marketing Strategy . . . . contd.

Describe the 7Ps of marketing of your proposed
enterprise.
Describe intended typical payment terms for
customers, warranties , etc.).
Other issues and their impact e.g., warranties

MARKET FEASIBILITY . . .
contd. .

Marketing Plan
Describe your Marketing Background and
Objectives
Formulate your marketing plan based on your
marketing strategies.
Describe the control & evaluation system in
implementing your marketing plan.
Layout your marketing roadmap.

TECHNICAL FEASIBILITY

Product/Service Description

Describe the product or service in simple

language.
Describe key components or raw materials that
will be used in the product, how the enterprise
will source these and how available they are.
Describe how the product will be packaged and
sold in the target market.
Describe how customers would buy and use the
product or service.

TECHNICAL FEASIBILITY . . . contd.

.

Product Capacity, Process & Schedule

Describe the type of operation of your enterprise
whether it will be automatic or manually
operated, and the operating time, e.g. 8-hour,
12-hour, 18 hour or 24 hour operation.
Determine the size of your plant/enterprise or
rated capacity based on the target market share.
Carefully determine the percent capacity
utilization based on industry trends.
Identify limitations or constraints of the
technology.

TECHNICAL FEASIBILITY . . . contd.

.

Product Capacity. . . . . Contd.

Estimate the size and type of production
facilities.
Illustrate and describe the process flow of
producing/making your product.
Estimate the manpower requirement.
Present operational timelines in each
process.
Present your production schedule based on
the type of operation, operating time, rated
capacity and manpower requirement.

TECHNICAL FEASIBILITY . . . contd.

.

Packaging
Describe how the product will be packaged and
sold in the target market.
Describe how customers would buy and use the
product or service.
Describe the packaging design and sizing.
Describe key components or raw materials that
will be used in the product, how the enterprise
will source these and how available they are.
Determine the manpower requirement in
packaging the product.

TECHNICAL FEASIBILITY . . . contd.

.

Materials Requirement
Determine the amount of direct and indirect
materials needed.
Present the current and future availability
and access to the materials and cost trends.
Present the total materials requirement and
cost.

TECHNICAL FEASIBILITY . . . contd.

.

Warehousing and Storage

Determine the total daily production.
Determine product and materials inventories.
Determine marketing schedules/sales volume
Estimate size and location of storage facilities.
Present stocking size and schedule.
Determine manpower requirement.

TECHNICAL FEASIBILITY . . . contd.

.

Machineries and Equipment

Determine the quantity and technical specification
of machineries and equipment needed based on
type of operation and rated production capacity.
Present the total machineries and equipment and
cost.
Present sequence of operation or an operational
management plan.
Layout the location of the machineries and
equipment.

TECHNICAL FEASIBILITY . . . contd.

.

Plant Layout
Layout the process flow with the corresponding
machineries & equipment set up.
Illustrate the building & facility layout
Illustrate the vicinity map and perspective of
the building & facility.

MANAGEMENT FEASIBILITY

Business Structure
Identify the proposed legal structure of the business or
type of business organization.
Outline the organizational structure of the business
along with lines of authority and decision making
structure.
Identify any potential joint venture partners, alliances or
other important stakeholders.
Identify the availability of skilled and experienced
management staff.
Identify the availability of consultants and service
providers with the skills needed to realize the project,
including legal, accounting, industry experts, etc., if any.

MGT. FEASIBILITY . . . contd. .

Manpower

Requirement & Responsibilities

Direct Labor / Production Line Personnel

Describe
the
direct
labor
requirement
responsibilities.

and

Management Staff
Describe the management positions and responsibilities.

MGT. FEASIBILITY . . . contd. .

Organizational Management Plan

Describe how the organizational/management
structure will be established and operational.
What key individuals will handle the project?
Is there a reward system for the key
management staff? Is it based on business
performance?

FINANCIAL FEASIBILITY

Investment Cost
Determine the total project cost requirements.
Estimate capital & equipment outlay
requirement needed
Estimate working capital needs.
Estimate start-up/pre-operational capital needs
until revenues are realized.
Estimate contingency capital needs due to
construction delays, technology malfunction,
market access delays, etc.
Estimate other capital needs.

MGT. FEASIBILITY . . . contd. .

Sources of Funds
Identify the sources of funds for the operation of the
business enterprise.
Identify alternative equity sources and capital availability
family, producers, local investors, angle investors,
venture capitalists, bank loans, etc.
Estimate equity and credit needs, if necessary.
Identify and assess alternative credit sources - banks,
government (i.e. direct loans or loan guarantees), grants
and local and state economic development incentives.

MGT. FEASIBILITY . . . contd. .

Financial Assumptions
Present financial assumptions on financial
terms or parameters as well as expected
periodic increase or cost escalation.
Assumptions must be based on existing
cost trends of financial parameters.

MGT. FEASIBILITY . . . contd. .

Financial Schedules
Present financial schedules as reference of the
projected financial statements.

MGT. FEASIBILITY . . . contd. .

Projected Financial Statements

Present projected financial statements (5-year
projection):
Profit & Loss /Income Statement
Cash Flow Statement
Balance Sheet Statement

MGT. FEASIBILITY . . . contd. .

Financial Analysis
Present financial analysis by determining the following:
Profitability analysis
Return on Investment net profit after taxes/total
investment
Payback period total investment/net profit after taxes
Break-even Point analysis
To calculate the break-even, determine the fixed cost (FC),
variable cost (VC) and selling price (SP).

Price selling price per unit at break-even

Break-even Price = VC + FC
Quantity number of items sold or produced at break-even
Break-even Quantity = FC / (SP-VC)
Break-even Revenue = Break-even Qty x SP

SOCIO-ECONOMIC FEASIBILITY

Service Area Profile

Identify and describe the service area
Describe the present socio-economic profile of
the service area.

Related Laws and Regulations

Identify and describe the related laws and
regulations in the service area of the business
venture or industry

SOCIO-ECONOMIC FEASIBILITY . . .
contd. .

Expected Benefits to be Derived

Community
Estimate the expected wages to be earned by local
workers to be the enterprise.

Government/Local Government Unit

Estimate the expected taxes, licensing fees & other
regulatory fees to be derived from the operation of
the business.

SENSITIVITY AND RISK

ANALYSIS

Sensitivity Analysis
It isimportantthattheprojectcashflowis subjected
to thefullrange ofsensitivity analysisundera range
of prices based on data that is collected for the
feasibility study.
Thiswillprovidethefullrange
ofconditionsthatsupport thefeasibilityof
theproject.
Estimate the returns under various production, price
and sales levels. This may involve identifying best
case, typical, and worst case scenarios or more
sophisticated analysis like a Monte Carlo simulation.

SENSITIVITY & RISKS ANALYSIS. . .

contd. .

Sensitivity Analysis . . . . contd.

Common methods of sensitivity analysis include
using:
Scenario management tools such as those built into
Microsoft Excel.
Brainstorming techniques involving identifying activities
and potential factors that could affect the outcome of
those activities. This also involves generating "what if"
questions to determine how the activity will be affected
by different scenarios.
Modeling and simulation techniques (often used for
testing computer systems and IT scenarios)

SENSITIVITY & RISKS ANALYSIS. . .

contd. .

Risk Analysis
Identify and describe the risks associated in the operation of
the business.

Risk maybe briefly defined as the chance of loss

Risk from fire
Risk from theft
Risk from pilferage
Risk in choice of business location
Risk from calamities
Risk from spoilage and deterioration
Risk from changes in price levels
Credit risk
Risk from physical distribution

SENSITIVITY & RISKS ANALYSIS. . .

contd. .

Risk Analysis . . . . contd.

Identify mitigating actions to eliminate the risks.
There are 2 chief methods of dealing with risks:
through the use of insurance
by means of speculation

IMPLEMENTATION PLAN

Implementation Plan/Road Map

Layout your implementation plan in tabulation and
figure form.