Feasibility Study

1. Feasibility Study Lecture 5 :Type, Components and common factors (TELOS) of Feasibility study Lecturer Hazhar Khalid Ali

2. Types of feasibility Study 1. Technical feasibility can a solution be supported with the existing technology or not? 2. Economic feasibility is the existing technology cost effective? 3. Operational feasibility Will the solution work in the organization if implemented?

3. The Components of a Feasibility Study • Description of the Business: The product or services to be offered and how they will be delivered. • Market Feasibility: Includes a description of the industry, current market, anticipated future market potential, competition, sales projections, potential buyers, etc. • Technical Feasibility: Details how you will deliver a product or service (i.e., materials, labor, transportation, where your business will be located, technology needed, etc.). • Financial Feasibility: Projects how much start-up capital is needed, sources of capital, returns on investment, etc. • Organizational Feasibility: Defines the legal and corporate structure of the business (may also include professional background information about the founders and what skills they can contribute to the business).

4. Feasibility includes • Project name • Problem or opportunity definition • Project description • Expected benefit • Consequence of rejection • Resource requirements • alternatives • Other consideration • Theorization

5. Five common factors (TELOS) • Technology and system feasibility • Economic feasibility • Legal feasibility • Operational feasibility • Schedule feasibility

6. 1. Technology and system feasibility • The assessment is based on an outline design of system requirements in terms of Input, Processes, Output, Fields, Programs, and Procedures. This can be quantified in terms of volumes of data, trends, frequency of updating, etc. in order to estimate whether the new system will perform adequately or not this means that feasibility is the study of the based in outline.

7. 2. Economic feasibility • Economic analysis is the most frequently used method for evaluating the effectiveness of a new system. More commonly known as cost/benefit analysis, the procedure is to determine the benefits and savings that are expected from a candidate system and compare them with costs. If benefits outweigh costs, then the decision is made to design and implement the system. An entrepreneur must accurately weigh the cost versus benefits before taking an action. Time Based: Contrast to the manual system management can generate any report just by single click .

8. 3. Legal feasibility • Determines whether the proposed system conflicts with legal requirements, e.g. a data processing system must comply with the local Data Protection Acts. 4. Operational feasibility • Is a measure of how well a proposed system solves the problems, and takes advantages of the opportunities identified during scope definition and how it satisfies the requirements identified in the requirements analysis phase of system development.

9. 5.schedule feasibility • A project will fail if it takes too long to be completed before it is useful. Typically this means estimating how long the system will take to develop, and if it can be completed in a given time period using some methods like payback period. Schedule feasibility is a measure of how reasonable the project timetable is. Given our technical expertise, are the project deadlines reasonable? Some projects are initiated with specific deadlines. You need to determine whether the deadlines are mandatory or desirable.

10. Other feasibility factors • Market and real estate feasibility • Resource feasibility • Cultural feasibility

11. Market and real estate feasibility • Market Feasibility Study typically involves testing geographic locations for a real estate development project, and usually involves parcels of real estate land. Developers often conduct market studies to determine the best location within a jurisdiction, and to test alternative land uses for a given parcels. Jurisdictions often require developers to complete feasibility studies before they will approve a permit application for retail, commercial, industrial, manufacturing, housing, office or mixed-use project. Market Feasibility takes into account the importance of the business in the selected area.

12. Resource feasibility • This involves questions such as how much time is available to build the new system, when it can be built, whether it interferes with normal business operations, type and amount of resources required, dependencies, etc. Contingency and mitigation plans should also be stated here. Cultural feasibility • In this stage, the project's alternatives are evaluated for their impact on the local and general culture. For example, environmental factors need to be considered and these factors are to be well known. Further an enterprise's own culture can clash with the results of the project.

13. Industry description • Describe the size and scope of the industry, market and/or market segment . • Estimate the future direction of the industry, market and/or market segment . • Describe the nature of the industry, market and/or market segment. Is it stable or going through rapid change and restructuring? • Identify the life-cycle of the industry, market and/or market segment. Is it emerging, growing, mature, declining?

14. Industry competitiveness • Describe the industry concentration. Are there just a few large producers or many small producers? • 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.

15. Market potential • Identify whether the product be sold into a commodity market or a differentiated product/service market. • Identify the demand and usage trends of the market or market segment in which the product or service will participate. • Examine the potential for emerging, niche or segmented market opportunities. • Explore the opportunity and potential for a branded product. • Assess market usage and your potential share of the market or market segment.

16. Technical Feasibility • Facility needs. • Estimate the size and type of production facilities. • Investigate the need for related buildings, equipment, rolling-stock, etc. Suitability of production technology • Investigate and compare technology providers. • Determine reliability and competitiveness of technology (proven or unproven, state-of-the-art, etc.). • Identify limitations or constraints of the technology.

17. Availability and suitability of site • Investigate access to: • raw materials • transportation • labor • production inputs (electricity, natural gas, water, etc.) • Investigate potential emissions problems. • Analyze other environmental impacts. • Identify regulatory requirements. • Explore economic development incentives.

18. Raw materials • Estimate the amount of raw materials needed. • Investigate the current and future availability and access to raw materials. • Assess the quality and cost of raw materials. Other inputs • Investigate the availability of labor including wage rates, skill level, etc. • Assess the potential to access and attract qualified management personnel.

19. Estimate the total capital requirements • Assess the “seed capital” needs of the business project during the investigation process and start-up, and how these needs will be met. • Estimate capital requirements for facilities, equipment and inventories. • Estimate working capital needs. • Estimate start-up capital needs until revenues are realized at full capacity. • Estimate contingency capital needs due to construction delays, technology malfunction, market access delays, etc. • Estimate other capital needs.

20. Budget expected costs and returns of various alternatives • Estimate the expected revenue, costs, profit margin and expected net profit. • Estimate the sales or usage needed to break-even. • 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. • Assess the reliability of the underlying assumptions of the analysis (prices, production, efficiencies, market access, market penetration, etc.) • Benchmark against industry averages and/or competitors (cost, margin, profits, ROI, etc.). • Identify limitations or constraints of the economic analysis. • Calculate expected cash flows during the start-up period and when the business reaches capacity. • Prepare pro forma income statement, balance sheet, and other statements of when the business is fully operating.

21. Business structure • Identify the proposed legal structure of the business. • Outline the staffing and governance 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 business managers. • Identify the availability of consultants and service providers with the skills needed to realize the project, including legal, accounting, industry experts, etc.

22. Feasibility studies V business plans • A feasibility study is designed to discover if a business is "feasible" or not. It will answer questions such as "will your idea work?  It is an essential first step before spending money and time on more detailed plans. The information gathered is not wasted as it can be incorporated into the Business Plan. • On the other hand a Business Plan is a more detailed and in depth document that incorporates the information gained from a feasibility study plus specific timelines, detailed budgets with forecasts and a detailed financial strategy.

23. Feasibility before business plan • Before you begin writing your business plan you need to identify how, where, and to whom you intend to sell a service or product. You also need to assess your competition and figure out how much money you need to start your business and keep it running until it is established. Feasibility is a tool for a business plan • Feasibility studies address things like where and how the business will operate. They provide in-depth details about the business to determine if and how it can succeed, and serve as a valuable tool for developing a winning business plan.

24. The feasibility study framework The document should include sections on: • Personal details • The Business Idea • Critical factors • Market analysis • Resource requirements • Financial viability • Capital requirements • Perform a preliminary study to determine a project's viability. • Analyze an existing system to see if it is worth upgrading. • Establish the cost-effectiveness of the proposed system. • Determine if the system conflicts with legal requirements.