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What is feasibilitystudy? As the name implies, a feasibility
study is an analysis of the viability of an idea. The feasibility study focuseson helping answer the essentialquestion of should we proceed withthe proposed project idea? Allactivities of the study are directedtoward helping answer this question.
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What is a feasible business
venture? A feasible business venture is one where thebusiness will generate adequate cash-flow andprofits, withstand the risks it will encounter,remain viable in the long-term and meet the
goals of the founders. The venture can be a newstart-up business, the purchase of an existingbusiness, an expansion of current businessoperations or a new enterprise for an existing
business
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Steps in Making a Feasibilitystudy
A feasibility study is an important step in
business development. The success of afeasibility study is based on the carefulidentification and assessment of all of theimportant issues for business success.Depending on the business project, additional
items may also be important. Remember, thebasic premise of a feasibility study is todetermine the potential for success of aproposed business venture.
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Description of the ProjectIdentification and exploration of
business scenarios. Identify alternative scenarios or business models
of what the project may entail and how it might beorganized. These may come from the idea
assessment or market assessment that you mayhave already completed. Eliminate scenarios and business models that dont
make sense.
Flesh-out the scenario(s) and model(s) that appearto have potential for further exploration.
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Description of the ProjectDefinition of the project and alternative
scenarios and models. List the type and quality of product(s) or
service(s) to be marketed. Outline the general business model (ie. how the
business will make money). Include the technical processes, size, location,
kind of inputs Specify the time horizon from the time the
project is initiated until it is up and running atcapacity.
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Description of the Project
Relationship to the surroundinggeographical area.
Identify economic and social impacton local communities.
Identify environmental impact on thesurrounding area.
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Market FeasibilityIndustry description.
Describe the size and scope of the industry, market and/ormarket segment(s). Estimate the future direction of the industry, market
and/or market segment(s). Describe the nature of the industry, market and/or market
segment(s) (stable or going through rapid change andrestructuring).
Identify the life-cycle of the industry, market and/ormarket segment(s) (emerging, mature)
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Market FeasibilityIndustry competitiveness. Investigate industry concentration (few large
producers or many small producers). Analyze major competitors. Explore barriers/ease of entry of competitors into
the market or industry. Determine concentration and competitiveness of
input suppliers and product/service buyers. Identify price competitiveness of product/service.
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Market FeasibilityMarket potential . Will the product be sold into a commodity or
differentiated product/service market? Identify the demand and usage trends of the market
or market segment in which the proposed 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 estimated market usage and potential share
of the market or market segment .
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Market Feasibility
Sales projection. Estimate sales or usage. Identify and assess the accuracy of
the underlying assumptions in thesales projection.
Project sales under variousassumptions (ie. selling prices,services provided).
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Market Feasibility
Access to market outlets. Identify the potential buyers of the
product/service and the associatedmarketing costs.
Investigate the product/servicedistribution system and the costsinvolved.
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Technical Feasibility
Determine facilityneeds.
Estimate the size andtype of productionfacilities.
Investigate the need forrelated buildings,
equipment, rolling-stock
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Technical Feasibility
Suitability of production
technology. Investigate and compare
technology providers. Determine reliability and
competitiveness of technology(proven or unproven, state-of-the-art).
Identify limitations or constraints of technology
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Technical Feasibility
Availability and suitability of site. Access to markets. Access to raw materials. Access to transportation.
Access to a qualified labor pool. Access to production inputs
(electricity, natural gas, water, etc.).
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Technical FeasibilityAvailability and suitability of site.
Investigate emissions potential. Analyze environmental impact. Identify regulatory requirements. Explore economic development incentives. Explore community receptiveness to
having the business located there.
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Technical Feasibility
Raw materials. Estimate the amount of raw
materials needed. Investigate the current and
future availability and access toraw materials.
Assess the quality and cost of
raw materials and markets of easily substituted inputs.
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Technical Feasibility
Other inputs . Investigate the availability of
labor including wage rates,skill level, etc.
Assess the potential to accessand attract qualifiedmanagement personnel.
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Estimate the total capital
requirements. Assess the "seed capital" needs of the
business project and how these needswill be met.
Estimate capital requirements forfacilities, equipment and inventories.
Determine replacement capitalrequirements and timing for facilities
and equipment. Estimate other capital needs.
Financial Feasibility
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Estimate the total capital
requirements. Estimate start-up capital needs
until revenues are realized at fullcapacity.
Estimate contingency capital needs(construction delays, technologymalfunction, market access delays,
etc. Estimate other capital needs.
Financial Feasibility
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Estimate equity and credit needs.
Identify alternative equity sources andcapital availability -- producers, localinvestors, angel investors, venturecapitalists, etc.
Identify and assess alternative creditsources -- banks, government (ie. directloans or loan guarantees), grants, local andstate economic development incentives.
Financial Feasibility
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Estimate equity and credit
needs. Assess expected financing
needs and alternative sources
-- interest rates, terms,conditions, covenants, liens,etc.
Establish debt-to-equity levels.
Financial Feasibility
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Budget expected costs and
returns of variousalternatives.
Estimate expected costs and
revenue. Estimate the profit margin and
expected net profit. Estimate the sales or usage
needed to break-even.
Financial Feasibility
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Budget expected costs and
returns of variousalternatives.
Estimate the returns under
various production, price andsales levels. This may involveidentifying "best case", "typical",and "worst case" scenarios or
more sophisticated analysis likea Monte Carlo simulation.
Financial Feasibility
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Budget expected costs and returns of various alternatives.
Assess the reliability of the underlyingassumptions of the financial analysis(prices, production, efficiencies, marketaccess, market penetration, etc.)
Create a benchmark against industryaverages and/or competitors (cost, margin,profits, ROI, etc.).
Financial Feasibility
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Budget expected costs and returns of various alternatives.
Identify limitations or constraints of theeconomic analysis.
Determine project expected cash flow duringthe start-up period.
Identify project an expected incomestatement, balance sheet, etc. whenreaching full operation.
Financial Feasibility
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Organizational/ManagerialFeasibility
Business structure. Outline alternative business
model(s) (how the businesswill make money).
Identify the proposed legalstructure of the business.
Identify any potential joint
venture partners, alliances orother important stakeholders.
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Organizational/ManagerialFeasibility
Business structure.
Identify availability of skilled andexperienced business managers. Identify availability of consultants and
service providers with the skills needed torealize the project, including legal,
accounting, industry experts, etc. Outline the governance, lines of authority
and decision making structure.
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Organizational/ManagerialFeasibility
Business founders . Are the people involved of
outstanding character? Do the founders have the "fire
in the belly" required to takethe project to completion?
Do the founders have the skills
and ability to complete theproject?
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Organizational/ManagerialFeasibility
Business founders . What key individuals will lead
the project? Is there a reward system for
the founders? Is it based onbusiness performance?
Have the founders organized
other successful businesses?
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Study Conclusions The study conclusions contain
the information you will use fordeciding whether to proceedwith creating the business.
The major categories thissection should include are: Identify and describe
alternative business scenariosand models.
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Study Conclusions Compare and contrast the
alternatives based on theirbusiness viability.
Compare and contrast the
alternatives based on thegoals of the producer group.
Outline criteria for decision
making among alternatives.
d l
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Study Conclusions Compare and contrast the
alternatives based on theirbusiness viability.
Compare and contrast the
alternatives based on thegoals of the producer group.
Outline criteria for decision
making among alternatives.